Plan To Scrap Free Tax-Filing Portal Questioned

By Fred Lucas | July 7, 2008 | 8:24 PM EDT

( - As the tax filing deadline approaches - April 17, 2008 - some lawmakers would like to see the Internal Revenue Service (IRS) provide a more direct Web portal for taxpayers to file taxes, despite problems with the agency's ability to safeguard taxpayer information.

Democratic Sens. Daniel Akaka (Hawaii) and Jeff Bingaman (N.M.) want to scrap an Internet filing system that allows about 70 percent of taxpayers to use a private tax preparer - such as TurboTax or H&R Block - for free through "Free File." The senators would replace it with an IRS-run system in what they believe would eliminate the middle man.

However, Tom Schatz, president of Citizens Against Government Waste (CAGW), a government watchdog group, said such a change is not only unnecessary but would represent a blatant conflict of interest for the IRS.

"Why would any one want the IRS to be the tax preparer as well as the tax judge?" Schatz told Cybercast News Service. "The IRS's job is to maximize revenue. They are not going to give the same advice as a private accountant."

Further, Schatz doubts a new multi-million dollar system installed by the IRS could adequately protect taxpayer privacy, citing a report by the Government Accountability Office.

"The agency has not yet fully implemented its agency-wide information security program to ensure that controls are effectively established and maintained," the GAO report from January says. "As a result, IRS is at increased risks of unauthorized disclosure, modification, or destruction of financial and taxpayer information."

The GAO report specifically said the nation's tax-collecting agency did not use complex computer passwords to prevent an unauthorized person from accessing information, does not encrypt sensitive data, fails to monitor changes to its mainframe computers and doesn't physically protect computer resources.

Nonetheless, Akaka is still a strong backer of the measure to create an Internet portal for the IRS.

"Sen. Akaka continues to support and push for passage of the 'Free Internet Filing Act," Akaka spokesman Jesse Broder Van Dyke told Cybercast News Service, after being asked about the GAO report. "He stands by his statements made at the bill's introduction."

In a previous statement, Akaka said, "If taxpayers take the time to prepare their own returns, they should have the right to file electronically directly to the IRS. Taxpayers should not be forced to share their private information with a third-party company in order to file electronically, especially in the era of increasing identity theft."

Many consumer groups agree, as four came out in support of the legislation last year.

Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group (U.S. PIRG) said the "Free File" system is nothing of the sort.

"It's a fraudulent term," Mierzwinski told Cybercast News Service. "It allows tax preparers to take advantage of consumers by using the IRS Web site as an advertising portal."

The "Free File Alliance" began in 2003 and has 19 different companies to choose from for filing taxes on line. The taxes are prepared online and sent directly to the tax service such as H&R Block or Turbo Tax. The company in turn sends the filing to the IRS. The free service is available to people making up to $54,000 per year.

The IRS portal in the legislation would be available to people of all incomes.

Last year, 18 million returns were filed through "Free File," said IRS spokeswoman Nancy Mathis. She didn't know what the cost would be for the IRS to create its own portal for those taxpayers to file directly through.

But Denise Sposato, manager of digital technology for H&R Block, said, "The whole purpose of the consortium of the Free File Alliance was to render null and void a system that would cost the IRS millions."

She also said, "The consortium is so the IRS would not get into competition with the industry."

As far as Schatz is concerned, the proposal for directly filing to a single IRS portal is not only risky but has little to do with convenience for taxpayers.

"It's to create as many jobs as possible for IRS employees," he said.

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