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1 1 (April 14, 2021)

handle is hein.crs/goveczi0001 and id is 1 raw text is: I 6 April 14, 2021 The Internal Revenue Service's Free File Program (FFP): Current Status and Policy Issues The option to electronically file (e-filing) federal individual income taxreturns began in 1986. Since then its usagehas grown considerably. As of 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 matter, the IRS would like to achieve an e-filing rate of 100% because ofits 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 taxrefunds for individuals who had too much income tax withheld or overpaid their taxduring a year. An element ofthe IRS's strategy to promote e-filing is the Free File Program(FFP). The programpermits individuals with adjusted gross incomes (AGIs) at orbelow a specified amount ($72,000 for the 2020 tax year) to electronically prepare and file their federal income taxreturns, free of charge, using software providedby participating tax software companies, which totaled ninecompanies at the start of the 2021 filing season. The IRS provides a direct portalon its website for qualified persons to file throughthe FFP. Since its creation in 2002, the FFP has sought to achieve three goals: Simplify tax preparation and filing for economically disadvantaged and underserved taxpayers; Provide more services to taxpayers who normally file paperreturns; and Encourage further growthin e-filing by giving lower- income taxpayers the opportunity to file their returns free online through software provided by taxs oftware companies. Origin of the FFP The FFP has its origin in two sources. One was the IRS Restructuring andReformAct of 1998 (RRA, P.L. 105- 206). Among other things, the RRA directed the IRS to increase the share ofe-filed individualreturns to 80% by 2007, with assistance fromthe private sector. Achieving this goalposed a significant challenge for the IRS, as the e- filing rate was 23.5% in the 1998 tax year. The second source was a directiveis 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 task force was theEZ Tax Filing Initiative. Its main purpose was to help the IRS reach its 80% e-filing goalby https://crsrepo 2007 by making electronic taxprep aration and filing more accessible to paper return filers without requiring themor the federal government to pay for commercialtax services. The key to success, senior Treasury officials thought at the time, was for the IRS to establisha single pointofaccess for lower-income taxpayers to free online taxpreparation and filing services providedby taxsoftware 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 acces sed at no cost through WhiteHouse.gov. It soon became apparent that the IRS lacked theresources and experience needed to efficiently launch such a project. To circumvent these obstacles, in January 2002, Treasury Secretary PaulO'Neill asked IRS Commissioner Charles Ross etti to forma partnership with taxs oftware companies to develop a systemforproviding free online tax preparation and filing services for lower-income taxpayers. The resulting private-public partnership was known as 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. From the start, 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 taxpreparation and filing software through IRS.gov to at least60% 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 ofproviding free filing services to cover 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 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 notto compete in the market for tax software. In return, member companies .conress.qov

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