IRS Urges E-Filing — But by Vendors Only, Please The IRS recommends that taxpayers file electronically — e-filing saves the government time and money, and is more accurate than IRS employees who type in the data from paper returns. But the IRS refuses to set up its own Web portal to receive the filings. Critics call it the work of tax-industry lobbyists.

IRS Urges E-Filing — But by Vendors Only, Please

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From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.


And I'm Robert Siegel. Tax day is coming, and the IRS would like you do it a favor and file electronically. Although e-filing helps the IRS, it may cost you extra. NPR's Martin Kaste explains why.

MARTIN KASTE: So I finished doing my taxes on Turbo Tax, and as always my pointer hesitates on that final button. It's my big annual dilemma - to e-file or not to e-file. Burt Dumars(ph), who runs e-filing at the IRS, says the choice is obvious.

Mr. BURT DUMARS (Internal Revenue Service): E-file returns only have about a one percent or less error rate, whereas paper returns have about a 20 percent error rate.

KASTE: That's because e-filing spares the IRS the work of manually retyping my data into its computer.

Mr. DUMARS: It makes things easier for the IRS, and it makes things a lot easier for the taxpayer.

KASTE: But wait a minute. If I'm making things easier for the IRS, why should I pay for the privilege? On Turbo Tax, e-filing costs me $16.95. Couldn't I just upload my data directly to the government, skip the middle man? Apparently not. Dumars says the IRS has a deal with companies such as H&R Block and Inuit, which makes Turbo Tax.

The government promises not to set up its own e-filing Web site, and in return the companies offer free e-filing to taxpayers who are below certain incomes levels.

Mr. DUMARS: They do that so that we don't provide that system in competition with them, and that's legitimate, that's the trade-off between the two.

KASTE: But it's not legitimate in the eyes of Nina Olson. She's the national tax advocate, sort of a congressionally mandated IRS watchdog, and she's a big critic of this deal with the tax-preparation industry.

Ms. NINA OLSON (National Tax Advocate): It's as if when we first passed the income tax laws, a consortium of private companies made the IRS contract away its right to print paper 1040s. It's that absurd.

KASTE: Olson says the IRS has an obligation to let people e-file directly to the government, if that's what they want. She also doesn't much like the free e-filing system offered by the companies. In theory, 90 million taxpayers qualify to use it, but in practice only a tiny fraction do so, and that number is dropping. Olson says that's because the free filing system is bewildering. You have to figure out which of the 19 different programs you qualify to use, and if you pick wrong, you have to start all over.

But Steve Ryan(ph) says these criticisms are beside the point.

Mr. STEVE RYAN (Attorney): It all comes back to an ideological issue. They want government to provide the service.

KASTE: Ryan is the industry lawyer who negotiated the deal with the IRS. He says keeping government out of e-filing is good for e-filing itself.

Mr. RYAN: When the government becomes my competitor, then I have every reason to run an ad that says Big Brother is going to be watching your keystrokes. Do we really believe that that sort of advertising or program would actually be beneficial to electronic filing?

KASTE: In fact, the industry already ran Big Brother-themed ads in California when tax authorities there were setting up CalFile, a direct e-filing system for state taxes.

Lenny Goldberg, the head of the California Tax Reform Association, says Intuit is leading the charge against direct e-filing.

Mr. LENNY GOLDBERG (California Tax Reform Association): They have thoroughly dominated the debate at the national level, held us up for a few years here in California. They fought intensely.

KASTE: Intuit declined to comment, despite repeated interview requests from NPR. The intensity of industry opposition to CalFile has not gone unnoticed in Washington, D.C. In February, IRS commissioner Mark Everson told Congress that he was reluctant to set up an IRS direct e-file system in part because of the bruising battle he witnessed in California.

Mr. MARK EVERSON (Commissioner, Internal Revenue Service): There is a big industry out there, and they will go to war when this policy is pursued.

KASTE: And that leaves federal taxpayers with little prospect of a direct-to-government e-filing system anytime soon, which brings us back to the final screen on my Turbo Tax. Should I e-file, save the paper, eliminate the typos? It certainly would be the 21st century thing to do, but 17 bucks is 17 bucks.

Martin Kaste, NPR News, Seattle.

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