WALTHAM, Mass. -- More than 4 million taxpayers will take advantage of the Internal Revenue Service's free electronic tax-filing program next year, up more than 43 percent from this year's filing season, a top federal tax official estimated yesterday.
Terence H. Lutes, the IRS's head of e-filing nationwide, also said there will be some changes to make the program easier to use and more appealing to taxpayers.
It will be the second year in which the IRS offers free electronic-filing service to eligible taxpayers through its Web site, www.irs.gov.
Lutes was the keynote speaker at a tax conference held yesterday at Bentley College. About 200 accountants, enrolled agents, lawyers and others from throughout New England attended the day-long event, said William P. Wiggins, who chairs Bentley's department of financial planning and taxation. The department and the IRS served as hosts of the conference.
Lutes discussed the free electronic-filing program in an interview after his address.
In October 2002, the IRS entered into a three-year agreement with a group of private computer-software companies to provide free electronic filing for at least 60 percent of all taxpayers who file an individual tax return.
The IRS initially estimated that about 2.4 million taxpayers would take advantage of the system during the last tax-filing season, according to a report issued by the U.S. Treasury's Inspector General for Tax Administration. By the time the season had ended, about 2.78 million taxpayers participated, the report said.
Lutes said yesterday he expects that more than 4 million taxpayers will take part in the program during the coming filing season, which starts in about three months.
Although program details are still being worked out for next year, Lutes said he expects several changes. For example:
"A number of companies" that provide the service under the IRS agreement will no longer offer refund-anticipation loans, he said. Participating taxpayers typically offer their refunds as collateral for these short-term loans, which have been criticized by consumer groups for the high rates of interest they charge.
When the free filing program was launched, the National Consumer Law Center and the Consumer Federation of America publicly warned consumers about these loans.
The groups said the loans, offered through banks operating in conjunction with commercial tax preparers, charge annual interest rates of 67 percent or more, are offered mostly to low-income consumers, and drain hundreds of millions of dollars from the antipoverty benefits of the earned-income tax credit, a tax break geared mainly to the working poor.
While some vendors in the IRS program will no longer offer the loans, some will, Lutes said. Vendors are free to offer loans and other services to taxpayers who take part in the service; taxpayers are not required to use them. "We're not their parents," he said.
The IRS will require all the vendors to warranty their free electronic-filing services so that if an error occurs related to their computer-software programs, the vendors will be liable for any resulting interest and penalties charged to taxpayers. (The IRS is not aware of any such problems from last year's filing season, Lutes said.)
Taxpayers who use the service next season will be able to determine more quickly whether the vendor they have chosen will process certain schedules (such as one for farm income and another for rents and royalties), and whether the vendor will do state income-tax returns -- either free or for a fee, he said. In the last filing season, taxpayers sometimes learned about these features only after completing their federal returns, he said.
Lutes said he expects the revised free service will become available to taxpayers on or about Jan. 16. He said he does not anticipate the free service will cut into the business of tax professionals and computer software companies.
The IRS's free service "is really for the taxpayers who do it themselves and don't traditionally use tax software," he said.
Separately yesterday, Lutes said that at some point in the coming filing season, perhaps in February, the IRS for the first time will begin accepting certain types of electronically filed annual tax returns for mid-sized and large corporations, as well as for nonprofit organizations. (The IRS already accepts electronically filed returns for small businesses, partnerships and trusts, he said.)
Lutes was one of a number of IRS officials and tax practitioners who addressed yesterday's conference -- the 10th Annual Internal Revenue Service Town Meeting.
The conference allows the IRS the opportunity to present its plans for the coming filing season, and serves as a general forum for open discussion among IRS officials and tax practitioners, Wiggins said.
