SACRAMENTO — California and the Internal Revenue Service have backed away from giving taxpayers free computer tax filing, bowing to opposition from private companies that make tax preparation software.
Instead, the tax collectors are compromising with the industry.
On Wednesday, the IRS announced that it has struck an agreement with a consortium of companies that typically charge a $10 to $30 fee to file taxes electronically. The IRS will refrain from establishing its own free online filing system. In exchange, the companies agree to offer free filing to at least 60% of taxpayers, with the mechanics to be worked out in coming months.
In California, where Intuit Inc. has led the industry's effort by hiring lobbyists and making targeted campaign contributions, the private companies have successfully scuttled the Franchise Tax Board's plans to offer a free, state-run Web site in which a computer does a taxpayer's arithmetic.
An industry-supported bill that would ban an interactive state-sponsored electronic tax filing system is scheduled to be heard before a Senate committee Wednesday.
At both the federal and state levels, the tax agencies say they are simply trying to give people a quicker, easier way to file with the government and eliminate long lines at the post office before midnight on April 15.
Makers of tax preparation software call the government effort unwarranted competition.
"We expect this [IRS] proposal will greatly increase electronic tax filing," said Ed Black, president of the Computer & Communications Industry Assn., which represents software makers and Internet and telecommunications companies. "A huge percentage of that will be free and it will be done by companies that have already invested a lot in making sophisticated, sharp, intelligent software."
IRS Commissioner Charles O. Rossotti called it "another significant step in the government's e-filing effort."
The debate in Sacramento and Washington, D.C., is the same. Tax agencies say they are not competing with private industry because their free filing systems would provide only arithmetic capability and a scan of tax tables, and would not advise people how to fill out their returns.
"It's basically a form with some links to some instructions that does the math," said Harley Duncan, executive director of the Federation of Tax Administrators. "It's not: 'Did you think about deducting the steel-plated safety shoes?' "
