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IRS Lays Down Law on Free Filing Products

Associated Press
Published | Updated

WASHINGTON – Some senators want to block companies that offer free tax preparation software through the Internal Revenue Service from selling other financial products to users from the free-file Web site.

"I don't think the government ought to be in the business of facilitating the solicitation of taxpayers," said Sen. Jeff Bingaman, D-N.M. He said he will push legislation "if Treasury won't correct the problem themselves."

The Treasury Department agreed to look into the situation after consumer groups said companies that provide the free tax preparation software improperly use taxpayer data to market mortgages, investment products and other tax services.

Nina Olson, the IRS' taxpayer advocate, said companies marketing their other products through the free filing services technically comply with laws that guard the privacy of taxpayers.

"I think that they're legally in compliance. It's whether everybody's working within the spirit of the law," Olson said.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, said he will call the companies in for a hearing if a committee study indicates a problem.

Electronic prompts offering financial services to customers using H&R Block's free filing service spurred the first complaints from consumer groups. The taxpayer advocates office said TurboTax users also receive prompts offering additional services. The office said most of the 17 companies that offer free tax preparation software through the IRS Web site market some kinds of services to their users.

IRS officials said the companies needed incentive to participate in an IRS initiative to get 80 percent of taxpayers to file electronically by 2007.

"There has to be a profit motive or a business motive for these companies that participate," said Dale Hart, a deputy IRS commissioner.

H&R Block said users can choose not to get solicitations, and their software complies fully with laws prohibiting the use of a taxpayer's information by requiring that users consent twice before getting information about other products.

Consumer groups say users may not realize they are giving their consent to share tax return data when a program asks them if they want to get tax tips or additional information.

"They don't have a big sign, `This is the consent form for giving up your privacy,"' said Jean Ann Fox, director of consumer protection at the Consumer Federation of America.