Taxpayers who use the Internal Revenue Service's program to file their federal tax returns electronically for free this year won't be bombarded with sales pitches for refund anticipation loans and other products.
The IRS and the Free File Alliance, a group of more than 20 private tax software companies, have agreed this year to ban pop-up ads and other sales pitches promoting other products and services the software provider is offering.
Some of those products were lightning rods for criticism, especially refund anticipation loans that entice taxpayers to take out interest-charging loans to get the money they're expecting from the IRS immediately, rather than simply waiting the two to three weeks it would take to get the refund on an e-filed return.
Bert Dumars, the director of electronic tax filing for the IRS, said Tuesday that the controversy over the availability of costly refund anticipation loans through free file providers "tainted" the program in previous years, prompting the change for 2007.
"The refund anticipation loans became something of a lightning rod for the product," he said in a conference call. "It was better to eliminate them."
IRS data showed that 0.5 percent of taxpayers using the Free File service obtained refund anticipation loans. But a separate market research survey conducted for the agency found that while 6 percent of all Free File taxpayers said they purchased additional products from the software providers, half of those filers indicated that they didn't mean to do it.
"Free is free this year," Dumars said. "You're not going to be offered a refund anticipation loan or another ancillary product."
The Free File program, however, will give taxpayers interested in purchasing other products the chance to leave the IRS program and access a provider's site.
The Free File program this year is open to all taxpayers with a gross adjusted income up to $52,000, up from $50,000 in 2006, regardless of filing status. About 70 percent of all taxpayers are eligible for the free e-file program, accessible only through the IRS Web site at www.irs.gov, Dumars said. So far, 17 software providers are offering free filing services, and that number ultimately could grow to 20.
Taxpayers with incomes above $52,000, while not eligible for the Free File program, still can file their federal income taxes for free by directly using some software providers, such as TaxAct.com, which offers free federal filing to all taxpayers.
Tax software firms, by offering free filing, are hoping to build relationships with customers that could lead to them paying for other services, such as electronic filing of their state tax return. Some providers, such as Taxslayer.com, also are offering participants in the Free File program free filing of their New York state tax returns.
The Free File Alliance also makes free electronic filing available to the majority of taxpayers -- an effort aimed at thwarting attempts to get the IRS to offer its own free tax preparation and filing service.
While more than 61 percent of all filers use a tax preparer for their returns, 3.9 million taxpayers, or about 4 percent of all filers, used the Free File service last year. Use of the Free File program plummeted by 23 percent from more than 5 million filers in 2005 after the program began limiting eligibility based on income.
Nearly half of the 8.7 million returns from New Yorkers in 2005 were filed electronically, up from 37 percent in 2004, either through the Free File program, tax software they purchased, or through a tax preparer, said IRS spokesman Kevin McKeon.