TREASURY INSPECTOR GENERAL FOR TAX
ADMINISTRATION
ADDITIONAL ACTION IS NEEDED TO EXPAND
THE USE AND IMPROVE THE ADMINISTRATION OF THE FREE FILE PROGRAM
Issued on June 28, 2007
Highlights
Highlights of
Report Number: 2007-40-105 to the
Internal Revenue Service Commissioner for the Wage and
Investment Division.
IMPACT ON TAXPAYERS
The Free File
Program accounted for only 3 percent of the individual income tax returns filed
in 2006. The Internal Revenue Service
(IRS) has made some improvements to the Program, and most taxpayers who used it
to prepare and file their tax returns were satisfied with it. While the IRS has taken steps to effectively
administer the Program, additional actions are needed to improve its usability
and marketing.
WHY TIGTA DID THE AUDIT
This
audit was initiated to address concerns raised by Congress and the IRS National
Taxpayer Advocate. The objective of the
audit was to determine how effectively the IRS is administering the Free File
Program.
The Free File Program allows taxpayers meeting certain
income requirements to electronically prepare and file their individual income
tax returns free of charge. The IRS
administers the Program as a partnership with a consortium of tax software
companies called the Free File Alliance, which provides free electronic tax
return preparation and filing services for the Program.
WHAT
TIGTA FOUND
The IRS can do
more to evaluate and promote the use of the Free File Program. While it has taken steps to evaluate the
experience of Program users, it has not collected data about taxpayers who
attempted to use the Program but did not or could not complete and file their
tax returns or eligible taxpayers who did not use the Program. Of the 93 million taxpayers eligible for the
Program in Calendar Year 2006, only 4.2 percent (3.9 million) used it.
The IRS can also improve its administration of the
Program. The IRS’ oversight reviews of
the
WHAT TIGTA RECOMMENDED
TIGTA
recommended the Director, Electronic Tax Administration, (1) develop a
comprehensive plan to evaluate and promote the Free File Program; (2) expand IRS
marketing efforts by directing promotional materials to taxpayers who are
eligible for the Program but have filed their returns on paper; (3) establish a
process to assess the accuracy of the Free File Indicator early in the filing
season; (4) establish a process to test the software used in the Program before
the filing season to ensure common tax scenarios are handled accurately; and (5)
work with the Alliance to expand the Guide
Me To A Company feature to include a description of special tax situations
supported by each Alliance member.
The
IRS stated it would develop a comprehensive plan to evaluate and promote the
Free File Program, expand marketing efforts by directing promotional materials
to taxpayers who are eligible for the Program but have filed their returns on
paper, and establish a process to assess the accuracy of the Free File
Indicator early in the filing season.
The IRS did not agree with our recommendation to establish a process to
test the software used in the Program before the filing season. It indicated doing so would create a
monumental challenge for the IRS and indicated it already shares information
with the tax preparation industry on trends and problems identified before and
during the filing season.
TIGTA
agrees that performing a quality review
of all commercial tax preparation software would not be feasible. However, some quality review is
warranted. The Free File Program is an
IRS-sponsored program, and taxpayers may assume the software is endorsed by the
IRS. The IRS could review the products
used as part of the Program for limited tax applications common to Program
users. In addition, while the IRS
communicates with the tax preparation industry on trends and problems it has
identified, the Free File Agreement does not require members to correct those
problems.
READ THE
FULL REPORT
To view the report,
including the scope, methodology, and full IRS response, go to:
http://www.treas.gov/tigta/auditreports/2007reports/200740105fr.html.
Email
Address: Bonnie.Heald@tigta.treas.gov
Phone Number: 202-927-7037
Web Site:
http://www.tigta.gov