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Bitten by Taxes and Bugs

February 10, 2003

The Internal Revenue Service last fall promised to make online tax filing available at no cost to many taxpayers -- and then turned the new electronic operation over to H&R Block, Intuit and a handful of other for-profit tax preparation firms.

But the "e" in the new IRS e-file system clearly doesn't stand for "easy." The Times' Kathy Kristof reported Feb. 6 that, according to an initial IRS report, technical difficulties and unexpected charges are tripping up some early filers. The federal agency and its for-profit partners blame e-file's early problems on growing pains and unexpectedly high volume -- 300,000 taxpayers went online during the first two weeks. We hope the problem is no more serious than that.

The unusual public/private venture is under the gun to fulfill the Bush administration's promise of a free online filing system that is easier to navigate than what the IRS might have crafted on its own. Online filing shouldn't be a hard sell. Intuit's TurboTax products top the computer software charts during the months leading up to April 15. And nearly 47 million Americans used such programs or tax professionals to file 2002 returns electronically. The IRS now is going after 85 million Americans who used paper to file last year's returns.

The public/private partnership surfaced last year after a fierce lobbying assault by tax preparation firms that clearly don't relish the prospect of head-to-head competition with the federal government. In return for the marketing boost that the IRS affiliation provides, the Bush administration extracted a promise to provide free tax-filing services to the 60% of taxpayers who file relatively simple returns.

So instead of a government-operated electronic filing system like that used in two dozen states, taxpayers who punch the "free file" button at are whisked to Web sites operated by such for-profit companies as Tax$imple and

The government lets companies determine who qualifies for free services -- which is where some of the early problems arose: Companies are setting different standards based on age, income and state of residency. Tax forms can be taxing, after all, so some filers are accidentally triggering charges; others ring up fees by wrongly assuming that the federal system includes a free state filing.

Americans are going online to buy expensive digital cameras, sell grandma's antique rocking chair and snare Hong Kong vacation packages. So there's no reason why the number of online returns shouldn't continue to grow. A federal mandate to push 80% of tax returns online by 2007 gives the agency even more reason to get IRS e-file right.

The only barrier we see to the continued migration to the Net is if Uncle Sam and his for-profit partners somehow use digital technology to make paying taxes more painful than it already is.

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