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1 1 (November 22, 2022)

handle is hein.crs/govejmg0001 and id is 1 raw text is: Updated November 22, 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 taxretums began in 1986. Since then its usagehas grown considerably.AsofJuly 28,2022, 99% ofsuch returns for the 2021 tax yearhad been e-filed. E-filing has advantages for both taxadministrators and taxpayers. Generally, e-filing substantially lowers the cost ofprocessingreturns and leads to fewer errorrates. E-filing also speeds up the processing of taxrefunds for individuals, allowing themto receive refunds sooner than they would if they were to file a paper return. The IRS has been actively promoting e-filing for individuals, businesses, and taxpractitioners since thelate 1990s. A key element of this strategy is the Free File Program(FFP). The programpermits individuals, regardless of filing status, with adjustedgross incomes (AGIs) at or below a specified amount ($73,000 in the 2021 taxyear) to e-file their federal income taxretums, free of charge, using software providedby participating tax preparation companies; there were eight such member companies at the start of the 2022 filing season. The IRS provides a portal on its website for eligible taxpayers to access the FFP. Taxpayers with AGIs above FFP limit may e-file their returns, free of charge, through the same portal using Free File Fillable Forms. Origin of the FFP The FFP has two sources. One was the IRS Restructuring and ReformAct of 1998 (RRA, P.L. 105-206). Among other things, the act directed the IRS to increase the shae of e-filed individualreturns to 80% by 2007, with assistance from the private sector. The e-filing rate was 23.5% in the 1998 tax year. A second source was a directive is sued in 2001 by the Office of Management and Budget's (OMB's) Quicksilver TaskForce to implement President George W. Bush's E- Government Initiative. One of the 24 initiatives chosen by the taskforce was the EZ Tax Filing Initiative. It was intended to assistthe IRS's efforts to achieve an 80% e- filing rate for individuals by 2007 by making electronic tax preparation and filing more acces sible to paper return filers without requiring themor 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 ofaccess for lower- and middle- income taxpayers to free online taxpreparation andfiling services providedby taxsoftware companies. (The IRS did not achieveits 2007e-filing goaluntil2012, when 83% of individualreturns 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 acces sed at no cost through WhiteHouse.gov. It soon became app arent that the IRS lacked the resources and expertise needed to launch such a project anytime soon. To overcome theseobstacles, in January2002, Treasury Secretary Paul O'Neill asked IRS Commissioner Charles Rossetti to forma partnership with taxs oftware companies to develop a systemmanagedby theIRS for providing free online tax preparation and filing services for lower-income taxpayers. The resulting private-public partnership was called the Free File Alliance (FFA). Structure and Evolution of the FFP The FFP began when the IRS signed an agreement with the 17 originalFFA member companies on October 30,2002. The agreement contained 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 costtheirtaxpreparation andfiling services through IRS.gov to at least60% oftaxpayers, rankedby AGI. The companies retained complete control over the services they provided and eligibility requirements, except that each member company had to be capable of providing free filing services to at least 10% of individual taxreturns 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 cancelthe agreement with one year's advance notice, if it determined that member companies, over an extendedperiod, were failing to provide adequate or required coverage. The agreement involved a trade-off between increased access to e-filing forpaper filers and the benefits froma free direct-filing option for all taxpayers through the IRS website. Under the agreement, the IRS pledged notto compete in the market for tax filing and preparation. In return, member companies agreed to offer free electronic tax prep aration and filing services to low- to middle -inconr taxpayers. This meant that the IRS could not develop prefilled tax forms and make themavailable at no cost to taxpayers throughits website. The IRS and FFA (nowknown as Free File, Inc. or FFI) have extended andrevisedthe original agreement five times. These subsequent agreements are linked to nine memoranda ofunderstanding (MOU).

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