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1 1 (January 26, 2023)

handle is hein.crs/govekjp0001 and id is 1 raw text is: Congressional Research Servk nfo rming Ih Ieg iltive d bat sin 'o 1914 S Updated January 26, 2023 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. As of October 28, 2022, nearly 92% of such returns for the 2021 tax year had been e-filed. E-filing has advantages for both tax administrators and taxpayers. Generally, e-filing substantially lowers the cost of processing returns and leads to fewer error rates. E-filing also speeds up the processing of tax refunds for individuals, allowing them to 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 tax practitioners since the late 1990s. A key element of this strategy is the Free File Program (FFP). The program permits individuals, regardless of filing status, with adjusted gross incomes (AGIs) at or below a specified amount ($73,000 in the 2022 tax year) to e-file their federal income tax returns, free of charge, using software provided by participating tax preparation companies; there are seven such member companies at the start of the 2023 filing season. The IRS provides a secure portal on its website for eligible taxpayers to access the FFP. Taxpayers with AGIs above the FFP limit may e-file their returns, free of charge, through the same portal using Free File Fillable Forms, which are electronic versions of tax forms and schedules. Origin of the FFP The FFP has two sources. One was the IRS Restructuring and Reform Act of 1998 (RRA, P.L. 105-206). The act directed the IRS to increase the share of e-filed individual returns to 80% by 2007, with assistance from the private sector. The e-filing rate was 23.5% in 1998. A second source was a 2001 directive issued 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. It was intended to help the IRS achieve an 80% individual e-filing rate by 2007 by making electronic tax preparation and filing more accessible to paper return filers through a partnership with the private sector. The key to success, according to senior Treasury officials involved in the initiative, was that the IRS establish a single point of access for lower- and middle-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.) To implement the EZ Tax Filing Initiative, the IRS first tried to develop digitized versions of Form 1040 and accompanying schedules and instructions that could be accessed at no cost through WhiteHouse.gov. When it became apparent that the IRS lacked the resources and expertise needed to complete such a project anytime soon, Treasury Secretary Paul O'Neill asked IRS Commissioner Charles Rossetti in January 2002 to form a partnership with tax software companies to develop a free online filing system that would be managed by the IRS for low-income taxpayers, who were most likely to file paper returns. The resulting private-public partnership was initially called the Free File Alliance (FFA); it is now known as Free File, Inc. (FFI). Structure and Evolution of the FFP The FFP began when the IRS signed an agreement with the 17 original FFI member companies on October 30, 2002. It laid down 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 services through IRS.gov to at least 60% of taxpayers, ranked by AGI. The companies retained complete control over the services they provided and eligibility requirements based on age, income, and state residence. To join the program, each company had to be capable of providing free filing services to at least 10% of individual filers. Under the agreement, the IRS was responsible for enforcing member company compliance with the terms of the agreement. The agency could cancel the agreement with one year's advance notice, if it determined that most member companies were not providing adequate coverage. A key element of the agreement was an IRS pledge to refrain from competing in the commercial market for tax filing and preparation. Keeping the IRS out of that market was a major objective of member companies. In return, member companies agreed to provide free electronic tax preparation and filing services to low- to middle-income taxpayers, giving the IRS another avenue for expanding individual e-filing. The IRS and FFI have extended and revised the original agreement five times. These subsequent agreements are linked to nine memoranda of understanding (MOU). The second agreement (2005) reduced the range of free services a company could offer to eligible taxpayers, limited the share of eligible taxpayers a single company could serve to 50%, and increased the share of taxpayers

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