The IRS is asking tax software companies to offer consumers free tax preparation and electronic filing services in exchange for easier access to individuals' private tax records-or face competition from the agency.
The IRS proposal, which was outlined in a recent request for information and elaborated on by the IRS Assistant Commissioner for Electronic Tax Administration Robert Barr at a recent conference, has caused uncertainty and anger among technology industry officials and tax-preparation software makers. Privacy advocates also are raising red flags about IRS proposals to revise current privacy rules for tax returns.
In its request for information, the IRS said it wanted to identify "organizations [that] are willing to offer free tax preparation and electronic filing via the Internet in exchange for some combination of monetary or non-monetary consideration." Later in the request, the IRS said many people "would prefer to file directly with the IRS" and asked questions about what businesses regard as the proper way to safeguard privacy in an online setting.
Technology industry groups say they object to the IRS insistence on free tax preparation services and are concerned about facing the agency as a potential competitor. They also disapprove of the agency's attempt to change privacy rules governing tax records.
"It is hard to understand why the government is going this route instead of taking advantage of the partnerships that the private sector has offered," said Bernie McKay, vice president of corporate affairs for software maker Intuit. He called the IRS's attempt to dictate the price of the service "a degree of intrusion into economic activity that is bad economics and smacks of industrial policy."
IRS officials were not immediately available for comment.
Groups of various political stripes say they oppose the IRS attempts to link software companies to certain taxpayer data in exchange for offering free tax preparation services. Software and tax preparation firms would have access to information from a taxpayer's return that may help the company more effectively target market certain financial products, according to software company officials who have had talks with the IRS on the matter.
"This is an incredible back room deal where the IRS is dealing away the privacy of American taxpayers to extend their regulatory power," said Peter Ferrara, associate professor of law at George Mason University, who wrote an analysis of taxpayer privacy for Americans for Tax Reform. "In return for expanded rights to use the taxpayers' data, the IRS wants companies to provide online tax preparation for free."
"It is one thing to provide tax forms online, but for the IRS to get into the marketplace is crossing the line," said Rob Atkinson, director of the Progressive Policy Institute's project on Technology and New Economy. PPI is affiliated with the Democratic Leadership Council chaired by Vice President Al Gore's vice-presidential running mate, Sen. Joseph Lieberman, D-Conn.
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