TAP 04-008

Free File— Filing State Returns

Statement of Issue:

The IRS FreeFile Alliance service does not address the individual's responsibility to prepare and file a state tax return.

Proposal:

The IRS should negotiate immediately with the participating FreeFile Alliance to provide complete, free filing service including state returns when the taxpayer meets the stated IRS Wizard requirements at the beginning of the vendor selection process. If the IRS cannot renegotiate the alliance agreement to include the filing of the state return until a later date, then information must be added to the IRS Wizard process to accurately inform the taxpayer the cost to comply with both federal and state filing requirements and leads to the software providers that meet his or her needs.

Response Notes:

The existing agreement between IRS and the Free File Alliance, LLC, provides taxpayers free online commercial tax preparation software for federal income tax returns only. This agreement does not require Alliance members to province taxpayers with a free state return as well. Therefore, taxpayers may incur a cost to file their state return through Free file Alliance members. To ensure taxpayers clearly understand the potential fees, associated with the state return, Alliance members will now be required to disclose on their Free File landing page, whether such returns are free or paid, and if paid, the cost of such returns. Please note, there are a handful of companies that did provide both a free federal and state return in 2004.