Free-File Software Can't Handle Even Simple Returns

The Treasury Inspector General for Tax Administration has issued a report slamming the IRS's Free-File Program, charging that the electronic-filing software is replete with errors that affect even the simplest tax returns. (The Free-File Program allows 70% of all taxpayers -- those earning $52,000 or less -- to prepare and electronically file their returns free of charge using software provided by private companies selected by the IRS.)  In response to the report, the IRS says it lacks authority to test the software for errors and, in any event, it would be impossible to do so.  The leaders of the Senate Finance Committee were sharply critical of the IRS:

• Chairman Max Baucus:  "When the IRS refers taxpayers to an online filing service, those taxpayers have a right to expect accurate tax preparation. If the IRS really doesn’t have the authority to require its Free File partners to get the software right, then they’ve got a bad agreement with these companies that doesn’t protect taxpayers as it should. ... [T]his report underscores the need for a direct filing portal on the IRS website, where the agency makes certain that the tools supplied to taxpayers comply with the tax code.”
• Ranking Member Charles Grassley:  "This is frustrating for Congress and taxpayers alike. We’re in the digital age. ...  But we can’t get a free electronic filing option for taxpayers to work right. Some of these software programs can’t properly compute a tax return using common basic scenarios. Reliability and accuracy are a problem.Taxpayers have every reason to question whether they'd be better off with a pencil and an abacus than using the current free-file program."

Report:  Additional Action Is Needed to Expand the Use and Improve the Administration of the Free File Program (2007-40-105) (6/28/07)

• One-Page Highlights of Report
• Senate Finance Committee Press Release: IRS Says It Cannot Verify Accuracy if Free File Tax Programs Offered Online

Press Coverage:

• Associated Press:  IRS Software Said to Have Problems, by Jim Abrams
• L.A. Times:  IRS Tax-Filing Software Often Problematic; An Audit Finds Many Free Progams Offered on the Agency's Site Can't Complete Basic Tax Returns, by Kathy M. Kristof
• MarketWatch:  Free Tax Filing Program is Faulty, by Ruth Mantell

Prior TaxProf Blog Coverage:

• Free File Alliance Blasts Senate's Proposed IRS Web Portal for Free Tax Return Preparation and eFiling (5/28/07)
• Grassley & Baucus Criticize IRS's Handling of Free File Program (11/5/06)
• Grassley Urges IRS to Rein in Hidden Expenses to Taxpayers in Free File Program (4/15/06)
• IRS Changes Free Web-Filing Rules (11/1/05)
• IRS Signs 4-Year Deal with Intuit, H&R Block: Companies to Provide Free Electronic Filing, IRS to Stay Out of Tax Software Market (10/25/05)