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Government Leader home > news stories
10/18/05
IRS forges unusual agreement with industry to benefit taxpayers
By Trudy Walsh
Government Leader Staff
With the Free File project, the IRS has developed an unusual agreement with private industry to offer the benefits of electronic filing to those who might otherwise have fallen through the cracks in the digital divide.
Although e-filing has been around since 1986, the only people who used it back then were tax professionals. The advent of the Internet and online tax software in the 1990s begged the question: Should the IRS build its own Web site for tax filing?
The answer, like the federal tax code itself, was complicated. The agency couldn’t just put an electronic form or two on its Web site, said Terry Lutes, IRS’ associate CIO. The required tax forms turned out to be about 180 pages. “That’s a software product,” Lutes said.
And understandably, the tax software industry was alarmed at the prospect of the IRS freely giving out its own homegrown software over the Internet.
So in a remarkable example of industry cooperating with government, the IRS enlisted the help of the Free File Alliance, a consortium of companies such as Intuit Inc. of Mountain View, Calif., in the electronic tax preparation and filing industry. The IRS would not build its own software if members of the alliance would offer their commercial products for free to select taxpayers, such as veterans or people with annual incomes of less than $50,000.
Negotiating the Free File Alliance agreement “was not easy for either side,” Lutes said. “Both sides had to give ground. I give them full credit for coming to sit at the table.”
To use IRS Free File, one of the 25 Quicksilver e-government initiatives, taxpayers must file through the IRS’ Web site at www.irs.gov. Sixty percent of all taxpayers are eligible for Free File, according to Lutes.
One reason Free File worked is that most taxpayers already pay to do their taxes, Lutes said. More than 55 percent use a tax professional, and many others use shrink-wrapped software packages, Lutes said, which usually cost about $50. IRS Free File meets the needs of the rest of taxpayers who would like to take advantage of e-filing.
“People who used tax professionals didn’t stop using them because we offered Free File,” Lutes said.
The IRS saves money on e-filing. It costs the tax agency $2.71 to process a paper return, but 56 cents to process an electronic return. More than 68 million taxpayers have e-filed so far this year, and of those, 5.1 million used Free File. Clearly, e-filing helps the agency make ends meet.
“But we don’t focus on that,” Lutes said. “Taxpayers don’t do things because it’s good for the IRS. They do things because it’s good for them.”
E-government has to be more than just projects, Lutes said. “It’s got to be a way of doing business, and it’s got to become part of the thinking around how we can provide better service,” he said.
Editor’s note: Government Leader will take a comprehensive look at e-government in the Nov. 7 issue, assessing the impact of e-government initiatives on human resources, finance and acquisition, weighing lessons learned and examining what’s ahead. The feature will include a wide-ranging interview with Karen Evans, the Office of Management and Budget’s director of IT and e-government.
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