[Federal Register Volume 67, Number 153 (Thursday, August 8, 2002)]
[Notices]
[Pages 51621-51624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19835]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service


Electronic Tax Preparation and Filing; Intent to Enter Agreement, 
Opportunity for Comment, Opportunity to Submit Proposals for Additional 
Consortia

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Advance notice of intent to enter an agreement, opportunity for 
comment, opportunity to submit proposals for additional consortia.

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SUMMARY: The Internal Revenue Service (IRS) proposes to enter into an 
agreement (the Agreement) with a consortium of companies in the 
electronic tax preparation and filing industry (the Consortium) who 
together desire to work together to offer free, online tax return 
preparation and filing services to taxpayers (Free Services). The 
Consortium will offer these Free Services to taxpayers. The IRS will 
provide taxpayers with links to the Free Services offered by the 
Consortium participants through a web page that will be hosted at 
irs.gov with links from firstgov.gov. These links to the Consortium 
will replace the current heading on IRS.gov for ``Free Internet Filing 
Opportunities''. Under the Agreement and during its term, the IRS will 
not compete with the Consortium in providing free, online tax return 
preparation and filing services to taxpayers. The IRS is soliciting 
comments on this proposed Agreement and complimentary or competitive 
offers from alternative consortia to provide Free Services to 
taxpayers. During this process other Federal agencies will be 
consulted.

DATES: Comments or proposals must be submitted by September 4, 2002.

ADDRESSES: Send letters with comments and suggestions on the proposed 
Agreement, or other proposals, to Paul J. Mamo, 1111 Constitution 
Avenue, Room 2403, Washington DC. 20224 or to the IRS Internet address: 
irs.gov">WI.EGOVPO@irs.gov.

SUPPLEMENTARY INFORMATION: The IRS plans to enter into an Agreement 
(the Agreement) with the Consortium to accomplish the following five 
objectives:
    1. Seek to assure access to a free and secure electronic 
preparation and filing option for additional taxpayers, building upon 
free electronic tax preparation and filing provided in the commercial 
market today;
    2. Making tax return preparation and filing easier and reducing the 
burden on individual taxpayers;
    3. Supporting the IRS's statutory goals of increased e-filing, 
pursuant to the IRS Restructuring and Reform Act of 1998, which 
encouraged the IRS to set a goal of having 80% of Federal tax and 
information returns filed electronically by the year 2007;
    4. Providing greater service and access to taxpayers; and
    5. Implementing one of the proposals in the President's FY'03 
budget, specifically to encourage further growth in electronic filing 
by providing taxpayers the option to file their tax return on-line 
without charge using cooperation with, and encouraging competition 
within, the private sector to increase e-filing.
    The anticipated essential terms of the Agreement are established in 
a document described as a Term Sheet. This draft Term Sheet follows.


[[Page 51622]]


    Dated: July 31, 2002.
Terence H. Lutes,
Director, IRS Electronic Tax Administration.

July 30, 2002 Draft

Free On-Line Electronic Tax Filing Agreement

Term Sheet

I. Purpose

    The purpose of this term sheet is to describe the essential terms 
of an agreement (``the Agreement''). The Agreement will provide for 
free, online tax return preparation and filing to individual taxpayers, 
thereby meeting the following five objectives:
    1. Seeking to assure access to a free and secure electronic 
preparation and filing option for additional taxpayers, building upon 
free electronic tax preparation and filing provided in the commercial 
market today;
    2. Making tax return preparation and filing easier and reducing the 
burden on individual taxpayers;
    3. Supporting the IRS's statutory goals of increased e-filing, 
pursuant to the IRS Restructuring and Reform Act of 1998, which 
encouraged the IRS to set a goal of having 80% of Federal tax and 
information returns filed electronically by the year 2007;
    4. Providing greater service and access to taxpayers; and
    5. Implementing one of the proposals in the President's FY'03 
budget, specifically to encourage further growth in electronic filing 
by providing taxpayers the option to file their tax return on-line 
without charge, using cooperation with, and encouraging competition 
within, the private sector to increase e-filing.

II. Summary

    To accomplish the above objectives, the Internal Revenue Service 
(the ``IRS'') and a consortium of companies in the electronic tax 
preparation and filing industry (the ``Consortium'') (together, ``the 
Parties'') desire to work together to offer free, online tax return 
preparation and filing services to taxpayers (``Free Services''). The 
Consortium will offer Free Services to taxpayers at no cost. The IRS 
will provide taxpayers with links to the Free Services offered by the 
Consortium participants through a web page (described more fully in VI 
below; hereafter, the ``Web Page''), which will be hosted at irs.gov 
accessible through firstgov.gov. During the term of the Agreement, the 
IRS will not compete with the Consortium in providing free, online tax 
return preparation and filing services to taxpayers.
    The Agreement is the best method (business case) for meeting the 
above stated objectives because it will promote higher quality Services 
by utilizing the existing expertise of the private sector, maximize 
consumer choice, promote competition for such Services, and thereby 
meet the objectives in the least costly manner.

III. Consortium

    The Consortium is intended to be part of an existing, non-profit 
corporation (under the provisions of 26 U.S.C. Sec. 501(c)(3)) 
affiliated with The Council for Electronic Revenue Communication 
Advancement (CERCA). The Consortium is being formed to facilitate 
participation in the Agreement by commercial entities (``Consortium 
Participants'') engaged in the business of electronic tax preparation 
and filing.

IV. Scope of Offerings

    A. The Consortium will offer Free Services for eligible taxpayers 
(taxpayers meeting the qualifications for free offerings) from 
individual commercial sites. Such offerings, when taken in the 
aggregate, are intended to provide for Free Services to be available to 
60% or more of taxpayers. If at any point the Consortium's aggregate 
offerings of Free Services are available to fewer than 60 % of 
taxpayers, the IRS may notify the Consortium of that fact. After 
receipt of such notice, the Consortium will have six months within 
which to raise the availability of such offerings to at least 60% of 
taxpayers. If the Consortium fails to achieve 60% within such six-month 
period, the IRS may terminate the Agreement. In making this decision, 
the IRS agrees to take into account the extent to which actual usage of 
Free Services has increased. Consortium offerings, taken together, will 
provide eligible taxpayers with a reasonable assurance that: (1) Free 
Services will be available on demand, and (2) these services will 
provide the ability to file the same federal tax forms which are 
fileable and available in the comparable paid online services offered 
by a selected Consortium member.
    B. The Consortium shall accept offerings only from entities that:
    1.Provide electronic, on-line tax preparation and filing of 
individual income tax returns;
    1. Will offer and can provide Free Services to a number of 
individual taxpayers which equals or exceeds 10 percent (10%) of the 
number of individual income tax returns filed in the base year (CY 
2001).
    3. Offer online software approved by the IRS that generates returns 
that can be sent to the IRS via an IRS-approved channel.
    4. Are Authorized IRS E-File Providers in accord with IRS Rev. 
Proc. 2000-31.
    5. Are in compliance with applicable law, including but not limited 
to, Department of Treasury/IRS rules, including but not limited to 31 
C.F.R. Part 10, IRS Rev. Proc. 2000-31, current versions of IRS 
Publications 1345 and 1345-A, and 26 U.S.C. Sec. 7216.
    6. Demonstrate the competence and capability to deliver their free 
offerings. This competence and capability may be demonstrated either by 
providing evidence of prior experience in providing on-line or 
electronic filing services or by self-certification. Such self-
certification shall be reasonably and objectively determined by the 
Consortium, taking into account the above referenced need for 
competence and capability and the intent of the Agreement to avoid 
unnecessary barriers to entry. Consortium Participants must have 
adequate capacity to meet the expected demand for their Free Services. 
In addition to initial Participants, the Consortium will accept later 
qualified applicants as Consortium Participants.
    7. Have security certification, from a third party agreed to by the 
IRS. It is understood that the Agreement will contain the names of 
acceptable third-party certifiers.
    8. Comply with the privacy provisions of 26 U.S.C. Sec. 7216. Have 
privacy certification from a third party agreed to by the IRS. 
Consortium participants are encouraged to use software that will enable 
their websites to state their privacy practices in a standard machine 
readable format that can be retrieved automatically and interpreted 
easily by users. Consortium Participants shall also agree that 
provisions of Free Services shall not be conditioned on obtaining an 
eligible taxpayer's consent to solicitations of additional business. It 
is understood that the Agreement will contain the names of acceptable 
third-party certifiers.
    9. Will not contain or provide links to inappropriate content.
    10. Clearly disclose to users their customer service support 
options and privacy policy.
    11. Agree to have at least one link to the IRS.
    C. The Consortium will take reasonable steps to publicize the 
criteria for Consortium participation. The Consortium will provide to 
the IRS, on request, the names of unsuccessful applicants for 
Consortium participation and the reason for their rejection.

[[Page 51623]]

V. Performance Standards

    A. The IRS will have the Consortium web page ready by December 31, 
2002. Consortium participants will have submitted their test returns 
produced by their software to the IRS sufficiently in advance of that 
date for testing . The IRS will not list on the Consortium web page a 
Consortium participant whose test returns have not been certified prior 
to the beginning of the filing season until that participant's test 
returns has been tested and certified.
    B. The Consortium will make its best efforts to assure that Free 
Services by individual Consortium Participants are performed in 
accordance with the terms of the Agreement and in accordance with the 
offer made by the Consortium Participant. If the IRS determines a 
particular offering of Free Services is deficient or that Free Services 
are not being properly performed, it will notify the Consortium in 
writing of that fact, and provide information regarding corrective 
actions it believes are needed.
    C. The undertaking by the Consortium under IV. A to offer Free 
Services at or above the 60% level shall apply only to January through 
April of each year (the primary tax filing season). Outside of the 
primary tax filing season, the Consortium shall encourage Consortium 
members to offer Free Services to the same extent that such services 
are offered by Consortium members for compensation.
    D. The Consortium will be responsible for establishing its 
governance standards. These standards shall be in accord with 
applicable law and regulations. The standards shall be consistent with 
the Consortium performing its obligations under the Agreement and be 
designed to maximize participation of industry members while meeting 
the requirements of the Agreement.
    E. IRS, in consultation with the Consortium, will develop an 
assessment process including usability performance measures to measure 
the extent to which the Agreement is accomplishing the objectives 
described in I., above. They will include at least:
    1. Uptime and reliability through the tax season.
    2. Delivery of the taxpayer to the Free Services in the minimum 
number of clicks consistent with usability design principles and the 
need to fully inform taxpayers about the free online services. From the 
site the taxpayer arrives at by clicking on the Consortium page's link 
to the Consortium Participant, until the taxpayer arrives at the Free 
Services, there will be no more clicks than required of such Consortium 
Participant's paying customers, if applicable, consistent with 
usability design principles

VI. Consortium Web Page Operation

    A. The IRS will host and maintain the Web Page. The Consortium will 
submit to the IRS proposed content for the Web Page, and the IRS shall 
determine the final content to appear on the Web Page. The IRS will 
ensure that there are links from appropriate Government sites to The 
Web Page.
    B. The design of the Web Page will conform to the following 
guidelines:
    1. The Consortium will determine rank order placement of links to 
individual offerings in accordance with reasonable, objective criteria. 
Each listing of an offering will provide a description of the scope of, 
and eligibility for, free Services it offers.
    1. The Web Page will provide a link to each Consortium 
Participant's Free Services entry using a minimum number of clicks.
    2. No advertising will appear on the Web Page.
    3. The Consortium will create and supply to IRS proposed content 
for the Web Page using existing IRS content management procedures.
    4. The Web Page will be developed using usability design principles 
and will be updated based upon usability testing and other user 
feedback.
    C. Taxpayers will be able to use Consortium Participants' software 
to prepare and electronically file their own personal income tax 
returns using proprietary processes and systems which such Participants 
host and maintain.
    D. The Consortium will promptly notify the IRS of any planned or 
unplanned unavailability (i.e., downtime) of an offering that is 
anticipated to exceed five hours in duration. The IRS will annotate 
that offering's listing on The Web Page with a notice advising the 
public of the unavailability. The IRS may delist an offeror if its 
service remains unavailable for more than 24 hours, but shall re-list 
after restoration of availability; provided, however, if a Consortium 
Participant repeatedly has periods of such unavailability, the IRS 
shall be entitled to delist that Consortium Participant.

VII. Marketing

    A. The Parties will coordinate with each other their respective 
marketing of these Free Services to provide uniformity and maximize 
public awareness. Final decisions on the marketing campaign will remain 
with the IRS for IRS marketing expenditures and with the Consortium and 
the Consortium Participants for their marketing expenditures.
    B. The IRS will not endorse specific offerings or products, but 
will promote the availability of the Consortium's Free Services.
    C. The Parties will work with the States to explore how the 
Agreement can support the states. Online tax preparation and e-filing 
of both federal and state returns can maximize benefits of this 
Agreement to taxpayers.
    D. The Consortium understands that the IRS may continue to provide 
Consortium Participants or non-Participants Partners links from 
Government sites to electronic preparers and filers.

VIII. Term of Agreement; Termination

    A. The Agreement will have an initial term of three years from its 
effective date with automatic options to renew for successive two year 
periods. Representatives from the Parties will meet semiannually to 
review operation of the Agreement. The Parties will review the terms of 
the Agreement on an annual basis, and, upon mutual consent, can agree 
in writing to modify any provision of the Agreement.
    B. Either Party may terminate the Agreement for cause if the other 
Party fails to comply with the Agreement, and such failure is not cured 
within thirty days of written notice of such failure from the other 
Party.
    C. The IRS may terminate the Agreement without cause, such 
termination to be effective 12 months after the date of notice of such 
termination.
    D. Should the IRS decide to offer Free Services to taxpayers the 
IRS shall notify the Consortium immediately. If the IRS gives such 
notice during the tax season (between January 1st and April 15th), or 
the last day of the filing deadline if that date is changed from April 
15) of any year, the Consortium may, by written notice to the IRS, 
terminate the Agreement, effective on April 16th of that year. If the 
IRS gives such notice between April 16th and October 15th of any year, 
then the Consortium may, by written notice to the IRS other than during 
a tax season, terminate the Agreement, such termination to be effective 
no fewer than 30 days after the date of the Consortium's notice of such 
termination. If the IRS gives such notice between October 15 and 
December 31, the Consortium may by written notice immediately terminate 
the Agreement at any time on or before December 31.

[[Page 51624]]

IX. Status of Term Sheet

    This is not the Agreement, and it is not intended to bind the 
parties. It is the parties' objective to reach an agreement consistent 
with these terms in the near future.
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For IRS

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For IRS For the Consortium

[FR Doc. 02-19835 Filed 8-5-02; 2:58 pm]
BILLING CODE 4830-01-P