[Federal Register Volume 67, Number 213 (Monday, November 4, 2002)]
[Notices]
[Pages 67247-67251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-27909]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
IRS' Intent To Enter Into an Agreement With Free File Alliance,
LLC (i.e., Free File Alliance)
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice.
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SUMMARY: This document contains the final agreement that has been
agreed to by IRS and Free File Alliance (formerly referred to as the
Consortium in the previous Federal Register Notice published on August
8, 2002 (67 FR 51621), a non-profit corporation (under the provisions
of 26 U.S.C. 501(c)(3)). This agreement will require companies of Free
File Alliance to offer free on-line tax preparation and filing services
to at least 60% of taxpayers. This document also responds to written
comments and concerns that were submitted in response to the
announcement of the draft agreement published as a Federal Register
Notice, dated August 8, 2002 (67 FR 51621).
DATES: These free on-line tax preparation and filing services will be
available for use by eligible taxpayers no later than December 31,
2002, and will be located at http://www.irs.gov with a link from http://www.firstgov.gov.
SUPPLEMENTARY INFORMATION:
Background
The Department of the Treasury and IRS announced, on August 8,
2002, through a Federal Register Notice (67 FR 51621), a proposed
agreement (the Agreement) with a consortium of companies (Free File
Alliance) that will offer free on-line tax return preparation and
filing services (Free Services) to at least 60% of taxpayers. IRS will
provide eligible taxpayers with links to the Free Services offered by
Free File Alliance members via a homepage managed and hosted through
irs.gov and accessible through firstgov.gov. The Agreement and during
its term, the IRS will not compete with the private sector by providing
free on-line tax preparation and filing services to taxpayers.
The IRS plans to enter into the Agreement with Free File Alliance
to accomplish the following five objectives:
1. Assuring 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,
[[Page 67248]]
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.
IRS Response to Comments and Concerns
In the Federal Register Notice, the IRS requested comments and/or
suggestions with respect to the draft Agreement. In response, the IRS
received over seven hundred comments from various individuals and
organizations. The vast majority of the feedback received supported the
Agreement and its benefits to taxpayers. Most of the positive feedback
received was from taxpayers; however supporting comments were also
received from members of Congress, consumer groups, tax software
companies, and technology associations. Themes running throughout this
feedback were the advantages of public/private sector cooperation
rather than direct government competition with the private sector, the
economic value of the Agreement and Free Services to both the
government and taxpayers, as well as other benefits of the Agreement to
many taxpayers who have not previously taken advantage of electronic
tax return filing. Taxpayers who e-file get their refunds twice as
fast, experience fewer mistakes and errors, and consistently prefer e-
filing as measured by customer surveys. The draft Agreement will extend
these taxpayer benefits by making Free Services available to
approximately 78 million taxpayers.
The most common concern voiced was that these Free Services would
adversely impact accounting and legal tax professionals by attracting
their clients to Free File Alliance products. However, IRS historical
data shows that the migration of taxpayers from the services of
accounting and legal tax professionals to low cost Internet filing
options has been minimal. This is also not supported by the experience
by comparable foreign governments. In Australia, for example, where the
national government itself has offered free Internet filing for a
number of years, over 70% of all taxpayers still use a tax
professional. Free File Alliance products, and the marketing thereof,
are expected to focus on taxpayers who currently self-prepare a paper
return and mail it to the IRS. In support of its continuing partnership
with the tax professionals, the IRS will continue to assist taxpayers
desiring to e-file through a tax professional by providing, through its
web site (irs.gov), a mechanism (zip code locator) to assist them in
finding an e-file tax return preparer in their area.
The next most common concern expressed was that on-line tax
software products do not provide the same level of quality and service
of a tax return preparer, thus possibly resulting in a greater tax
obligation or more errors. It is important to note that the free
offerings are not comparable to the services provided by an accounting
or legal tax professional, because they service two distinct groups of
taxpayers. The free offerings are expected to be of primary interest to
those taxpayers who manually prepare their own tax return. Taxpayers
who want more comprehensive services are expected to continue to seek
the services of accounting or legal tax professionals. Regardless of
the vehicle used to prepare and e-file a return, e-filed returns have a
lower error rate than paper returns. It is also expected that Free File
Alliance products will be equivalent to those offered for sale on the
commercial market and thus are expected to have all of the features and
operability of those commercial products.
Other respondents, including some consumer groups, expressed
concern that the Agreement does not sufficiently protect the interest
of taxpayers, specifically low-income taxpayers, because it may expose
them to the risk of receiving unsolicited products or services (e.g.,
Refund Anticipation Loans (RALs)). The Agreement clearly states the use
of any Free Service cannot be contingent on the sale of any other
product or service. It also provides that taxpayers will not have to go
through additional steps or barriers to access the Free Service, beyond
those steps required or imposed to access the comparable paid service.
In addition, federal tax laws already strictly prohibit unauthorized
marketing to taxpayers using a commercial tax preparation service.
Accordingly, information entered to complete a tax return under this
program will continue to be protected by Internal Revenue Code Section
7216 (26 CFR 301.7216). This provision of law requires explicit
taxpayer consent for tax return information to be used for any reason
other than the preparation of the tax return, including for marketing
purposes. IRS Publication 1345, Handbook for e-file Providers, also
governs marketing and business practices for Electronic Return
Orginators. In addition to the protections afforded by law, taxpayer
privacy and security protections for consumers will be increased in
that the Agreement requires that Free File Alliance products receive
third party privacy and security certifications, and these additional
requirements and certifications will be prominently displayed on the
IRS web site.
With respect to RALs, because taxpayers who e-file get their
refunds twice as fast, the demand for costly tax refund loans should be
reduced as a result of the Agreement. Also, the demand will be reduced
significantly further as refund cycle times are shortened under IRS'
Business Systems Modernization Plans. It should be noted that RALs are
generally governed by state, not federal law. Even if Free File
Alliance members had no financial products such as RALs offered within
their products, taxpayers wanting a tax refund secured bank loan would
still have them available through thousands of tax return preparers.
However, to ensure that taxpayer and consumer interests are fully
accounted for, the IRS is asking the statutory National Taxpayer
Advocate, and the Taxpayer Advocacy Panel (a federal advisory committee
comprised of over 100 taxpayers representing the 50 states) to advise
the IRS regarding Free File Alliance activities. There was a range of
comments (three or fewer), most of which reflected a general
misunderstanding of the Agreement. Three respondents stated the IRS
should not compete with the commercial marketplace by providing its own
government application. As stated earlier, private industry with proven
tax experience and expertise will be providing these Free Services, not
the IRS.
Three other respondents believed that the Free Services would not
help taxpayers overcome the complexity of the tax law. It is important
to point out that these complexities are inherent in the underlying tax
laws themselves. The Free Services will nonetheless reduce taxpayer
burden by making the tax return preparation, filing and payment process
simpler and easier. In typical tax software applications the taxpayer
need only input relevant tax information through a standard
``interview'' format. Applications then interpret most complications of
the tax process for the taxpayer, producing a final result suitable for
filing with the IRS at no cost to the taxpayer. Two respondents
believed that Free File Alliance members would be given an unfair
advantage over non-Free File Alliance members. Membership in Free File
Alliance is open to all companies that can satisfy the basic
eligibility requirements. Interested companies should visit
www.cerca.org for more
[[Page 67249]]
information. In addition, the IRS will also continue to list non-
participating software providers on the IRS web site.
One respondent questioned whether the Agreement was consistent with
antitrust laws. With respect to these concerns, on October 7, 2002, the
Free File Alliance received a business review letter from the Antitrust
Division of the United States Department of Justice (DOJ). The letter
concluded that the Free File Alliance, as proposed, should pose no
threat to competition in the market for providing tax services to
individuals.
Final Analysis
The overwhelming majority of the respondents supported the draft
Agreement as an effective way to expand the availability of the
benefits of e-filing through a public/private partnership. In
evaluating all the comments and concerns received, the IRS has
determined that the Agreement does not omit any necessary requirements;
therefore, it is the IRS' intention to enter into this Agreement with
the Free File Alliance, LLC. The final version of the Agreement is
attached.
Drafting Information
The principal author of these comments is Paul J. Mamo, IRS
Electronic Tax Administration; however, other personnel from the
Department of the Treasury and IRS participated in the development of
this document.
Dated: October 29, 2002.
Terence H. Lutes,
Director, Electronic Tax Administration, Internal Revenue Service.
Final Agreement
Free On-Line Electronic Tax Filing Agreement
This Agreement is entered into, as of October 30, 2002, between the
Internal Revenue Service (the ``IRS'') and the Free File Alliance, LLC
a consortium of companies in the electronic tax preparation and filing
industry (the ``Consortium''), a non-profit corporation (under the
provisions of 26 U.S.C. Sec. 501(c)(3)) formed under the auspices of,
and affiliated with, the Council for Electronic Revenue Communication
Advancement. The Consortium has been formed to facilitate participation
in this Agreement by commercial entities, which are members of the
Consortium engaged in the business of electronic tax preparation and
filing (``Consortium Participants'').
I. Purpose
This Agreement provides for free on-line tax return preparation and
filing to individual taxpayers, thereby meeting the following five
objectives:
1. Assuring 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 IRS and the Consortium
(together, ``the Parties'') will work together to offer free, on-line
tax return preparation and filing services to taxpayers (``Free
Services''). The Consortium will offer Free Services to taxpayers. The
IRS will provide taxpayers with links to the Free Services offered by
the Consortium Participants through a web page (described more fully in
V. below; hereafter, the ``Web Page''), which will be hosted at irs.gov
accessible through firstgov.gov. During the term of this Agreement, the
IRS will not compete with the Consortium in providing free, on-line tax
return preparation and filing services to taxpayers.
This Agreement is the best method for meeting the above stated
objectives because it will promote higher quality Free Services by
utilizing the existing expertise of the private sector, maximize
consumer choice, promote competition for such Free Services, and
thereby meet the objectives in the least costly manner.
III. 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 this 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 on-line services offered
by a selected Consortium Participant.
B. The Consortium shall accept offerings only from entities that:
1. Provide electronic, on-line tax preparation and filing of
individual income tax returns:
2. 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 on-line 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
[[Page 67250]]
accept later qualified applicants as Consortium Participants.
7. Have a security seal certification program, from a third party
agreed to by the Consortium and IRS. Certification will be based upon
an assessment of the system's ability to protect taxpayer data.
8. Comply with the privacy provisions of 26 U.S.C. Sec. 7216. Have
a privacy seal certification program from a third party agreed to by
the Consortium and 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.
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 web site (irs.gov).
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.
IV. 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 have been tested and certified.
B. The Consortium will use 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 this 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
V. 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.
2. The Web Page will provide a link to each Consortium
Participant's Free Services entry using a minimum number of clicks.
3. No advertising will appear on the Web Page.
4. The Consortium will create and supply to IRS proposed content
for the Web Page using existing IRS content management procedures.
5. 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.
VI. 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 this
Agreement can support the states. On-line 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.
VII. Term of Agreement; Termination
A. This Agreement has 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 this Agreement. The Parties will review the terms
of this Agreement on an annual basis, and, upon mutual consent, can
agree in writing to modify any provision of this Agreement.
[[Page 67251]]
B. Either Party may terminate this Agreement for cause if the other
Party fails to comply with this 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 this 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 this Agreement, effective on April 16th (or, if the filing
deadline is changed from April 15, on the day following such new
deadline) of that year. If the IRS gives such notice between April 16th
(or, if the filing deadline is changed from April 15, on the day
following such new deadline) and October 15th of any year, then the
Consortium may, by written notice to the IRS other than during a tax
season, terminate this 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
this Agreement at any time on or before December 31.
VIII. Miscellaneous
This Agreement represents the entire agreement between the Parties.
This Agreement is governed by Federal law.
Internal Revenue Service
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Free File Alliance
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[FR Doc. 02-27909 Filed 10-30-02; 10:08 am]
BILLING CODE 4830-01-P