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1 1 (March 31, 2022)

handle is hein.crs/govegcy0001 and id is 1 raw text is: Congressional Research Sernt nfo rming Ih Ieg iltive d bat sin 'o 1914 Updated March 31, 2022 The Internal Revenue Service's Free File Program (FFP): Current Status and Policy Issues The option to electronically file (e-filing) federal individual income tax returns began in 1986. Since then its usage has grown considerably. By the end of December 2020, 89% of returns for the 2019 tax year were e-filed. Nonetheless, 17.6 million paper returns were filed for that year. As a policy objective, the IRS would like to achieve an e- filing rate of 100% because of its advantages over paper filing. Generally, e-filing has a lower cost for processing returns and reduced error rates. E-filing also speeds up the processing of tax refunds for individuals who had too much income tax withheld or overpaid their tax during a year. An element of the IRS's strategy to promote universal individual income tax e-filing is the Free File Program (FFP). The program permits individuals with adjusted gross incomes (AGIs) at or below a specified amount ($73,000 for the 2021 tax year) to electronically prepare and file their federal income tax returns, free of charge, using software provided by participating tax software companies, which totaled eight companies at the start of the 2022 filing season. The IRS provides a direct portal on its website for qualified persons to file through the FFP. Taxpayers with AGIs above $73,000 can e-file their returns free of charge through the same portal using Free File Fillable Forms. Since its creation in 2002, the FFP has had three goals: Simplify tax preparation and filing for economically disadvantaged and underserved taxpayers; Provide more services to taxpayers who normally file paper returns; and Encourage further growth in e-filing by giving lower- income taxpayers the opportunity to file their returns free online through software provided by tax software companies. Origin of the FFP The FFP has its origin in two sources. One was the IRS Restructuring and Reform Act of 1998 (RRA, P.L. 105- 206). Among other things, the RRA directed the IRS to increase the share of e-filed individual returns to 80% by 2007, with assistance from the private sector. Achieving this goal posed a significant challenge for the IRS, as the e- filing rate was 23.5% in the 1998 tax year. The second source was a directive issued in 2001 by the Office of Management and Budget's (OMB's) Quicksilver Task Force to implement President George W. Bush's E- Government Initiative. One of the 24 initiatives chosen by the task force was the EZ Tax Filing Initiative. Its main purpose was to help the IRS reach its 80% e-filing goal by 2007 by making electronic tax preparation and filing more accessible to paper return filers without requiring them or the federal government to pay for commercial tax services. The key to success, senior Treasury officials thought at the time, was for the IRS to establish a single point of access for lower-income taxpayers to free online tax preparation and filing services provided by tax software companies. (The IRS did not achieve its 2007 e-filing goal until 2012, when 83% of individual returns were e-filed.) As a first step in implementing the EZ Tax Filing Initiative, the IRS tried to develop a digitized version of Form 1040 and accompanying schedules and instructions that could be accessed at no cost through WhiteHouse.gov. It soon became apparent that the IRS lacked the resources and experience needed to efficiently launch such a project. To circumvent these obstacles, in January 2002, Treasury Secretary Paul O'Neill asked IRS Commissioner Charles Rossetti to form a partnership with tax software companies to develop a system for providing free online tax preparation and filing services for lower-income taxpayers. The resulting private-public partnership was (and still is) called the Free File Alliance (FFA). Structure and Evolution of the FFP The FFP began when the IRS signed an agreement with the 17 original FFA member companies on October 30, 2002. There was a clear division of authority and responsibility between the IRS and the participating companies. The initial agreement required the companies to make available at no cost their tax preparation and filing software through IRS.gov to at least 60% of taxpayers ranked by AGI. The companies retained complete control over the scope of their free-file services and eligibility requirements, with one exception: each member company had to be capable of providing free filing services to cover at least 10% of individual tax returns filed for a year. The IRS was responsible for enforcing member company compliance with the terms of the agreement. As a result, the agency was authorized to cancel the agreement with one year's advance notice, if it determined that the companies, over an extended period, were failing to provide adequate or required coverage. A key component of the agreement arguably involved a trade-off between access to e-filing for paper filers and the potential benefits of the IRS creating a direct filing option for all taxpayers. The IRS pledged not to compete in the market for tax software. In return, member companies agreed to offer free electronic tax preparation and filing

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