Feldman, Shepherd, Wohlgelernter, Tanner & Weinstock, a plaintiff’s firm out of Philadelphia, thinks so. They have filed suit in the U.S. District Court for the Eastern District of Pennsylvania on behalf of Philadelphia resident Stacie Byers against members of an income tax software group, Free File Alliance. The suit, Byers v. Intuit Inc., alleges that members of the Free File Alliance, such as H&R Block and Intuit, have charged excessive e-filing fees.
Byers alleges that the IRS contract with the Free File Alliance was supposed to result in free e-filing for 70% of Americans. However, that was not the case as the limits for free filing were unrealistic. More than 70 million taxpayers were not eligible for free e-filing.
Byers’ attorneys point out that the IRS encourages e-filing but has made it impossible to e-file for free. There are fees to file and a cost associated with purchasing the software for tax return preparation.
The Free File Alliance Executive Director Timothy D. Hugo had indicated before the House Ways and Means Committee that the alliance expected to offer free filings for 93 million Americans. Only a small percentage of that (about 17 million) have actually filed for free.
Hmm. While mulling this over this morning, albeit admittedly not having had a full cup of coffee, I have to think there’s some merit here (and I am not generally a fan of class action litigation). It is true that it is nearly impossible to e-file for free if you don’t qualify for the free filings. And considering that the median income in the US is about $48,000, the $52,000 cap for free filing seems awfully ambitious for a 70% expected free file rate.
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KPE
The current IRS “Free E-Filing” initiative, using the “Free File Alliance”, is a joke.
Even if you are lucky enough to qualify for the free service it is provided by profit-making companies, such as Henry and Richard (H+R Block). The free-file page on the IRS website will take you to the website of the free preparer. I have no doubt that the likes of Henry and Richard will try to squeeze money out of low-income taxpayers via Refund Anticipation Loans and other high commission/high fee products.
(1) The IRS should not be endorsing the services of particular tax preparation companies, as it does implicitly if not directly by including them in this process.
(2) If the IRS wants to provide free electronic filing it should follow the example of New Jersey’s “NJWebFile” program (a rare occasion where anyone should follow the example set by the State of New Jersey). Qualifying taxpayers (the qualification has to do with the information to be submitted and not the income level of the taxpayer – i.e. if you have a Schedule C or income from a partnership or Sub-S corporation you cannot use NJWebFile) can go to the NJ Division of Taxation website and file their return directly with the State of New Jersey.
In 35 tax seasons I have never filed a federal tax return for a client, or for myself, electronically because I have never used tax software to prepare a return (all 400 of my federal returns are prepared by hand – I use NJWebFile for NJ resident returns if I can and if there is a refund). I will only file federal returns electronically if the IRS had the equivalent of NJWebFile.
The Wandering Tax Pro
Last year was the last time I do my own taxes. I’ve got an accountant now (helped me do my LLC goodness), and I’m going to have him do it. Best thing: what I pay him, at least for the business portion, is tax deductible!
I hate to be the simplistic de-mystefier, but when Hank & Dick agreed to mass-promote the E0file initiative (the saw an opportunity to capitalize financially), they were accomplishing what the IRS wanted and couldn’t seem to do itself — move taxpayers towards the less labor intensive electronic filing. An unoffical partnership was formed!
Over the years, CPAs and other professional preparers have had the pressured screws to force e-filing upon taxpayers, including many states that have mandatory threshholds for businesses, particularly pass-thru entities (like partnerships).
Back in the 1990s during the Clinton Administration, much of the IRS’s “teeth” were filed and the feds put increased responsibility, under a provision referred to a circular 230, upon CPAs and professional tax preparers to enforce tax compliance or face significant fines — the circular 230 pressure has only increased and, not too surprisingly, franchises like H&R Block are not subject to circular 230. But I digress…
Anyway, many CPA and professional tax preparer firms do not charge for e-filing, even though we have had even more administrative compliance and mandates placed upon us via circular 230. We, CPAs and other professional tax preparers, recommend e-filing when it’s clearly in the best interest in the taxpayer (such as those anticipating a refund) or it facilitates the demand expectations of taxpayers because of the media hype for e-filing.
As for the e-filing lawsuit, I cannot opine about the cost structures — I know technology has been tricky. For example, I purchased a desk top computer for $4,200 in 1988, and a 500 gb Dell XPS for $1,700 in 2006! The cost of technology is, historically, front-loaded!
I’ll never e-file because I do not want any private sector company to have my personal information (SSN, ect). If the IRS assigned “e-file IDs” or something to that effect so ZERO personal information was submitted to the tax-file companies and mandated the tax-file companies not require any sensitive personal information to efile (other than that ID). Then I would consider it. The reason why they are way off target is most people have never heard of free-filing because they do not own a computer, and any tax place they visit wants to charge (duh).