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IRS Calls Free File Program "Very Encouraging"

The Internal Revenue Service (IRS) reports more than half a million Americans have already filed their tax returns through the IRS' Free File program. The almost 640,000 returns represent about 22 percent of the 2.9 million returns filed electronically so far this tax season.

The IRS Restructuring and Reform Act of 1998, Congress mandated that the IRS have a goal of receiving 80 percent of all tax returns electronically by 2007.

Last fall, the IRS struck a new deal with an alliance of tax preparers and software publishers that will allow up to 78 million Americans to file their tax returns electronically without charge. Tax preparers such as H&R Block usually charge taxpayers a fee for online filing in addition to charges for the actual tax return preparation.

According to the IRS, the average online filing fee is $12.50. Under the terms of the agreement between the government and the Free File Alliance, tax preparers and other filing services that are members of the alliance must provide free online filing services to at least 10 percent of their customers.

In return, members of the alliance are promoted on the Free File website that provides taxpayers links to the free services. President Bush proposed free online tax filing last February as one of his E-Government initiatives.

Each Free File alliance member company sets taxpayer eligibility requirements for its own program. The requirements differ from company to company, but, generally, eligibility is based on factors such as age, adjusted gross income, state residency, military status or eligibility to file a Form 1040EZ or for the Earned Income Tax Credit.

Robert Wenzel, acting IRS commissioner, told a House Ways and Means Committee hearing last week, the early interest in the Free File program is "very encouraging," but it is still unlikely the IRS will meet the 80 percent goal by 2007.