Free tax preparation has some drawbacks

By Thomas A. Fogarty
USA Today

Under a deal struck last year with the IRS, 17 companies are offering free electronic preparation and filing of federal returns. Depending on the offer, you may qualify based on income, age or place of residence. The free offers for Web-based filing cover more than 60 percent of the nation's 130 million tax filers.

But beware. The IRS free-file Web page (www.irs.gov/app/freeFile/jsp/index.jsp?) includes some tax-preparation programs that charitably might be called primitive. Once a taxpayer gets past a half dozen or so well-established tax companies — Intuit, H&R Block, CCH among them — they'll find several slow-responding, malfunctioning, confusing and misleading sites.

And because they're free, expect them to demand a high degree of self-sufficiency on your part.

Despite rules that say the free use of the programs can't be conditional on purchase of another service — state tax preparation or a loan secured by an IRS refund, for example — some users have complained that it's easy to lock into such offers inadvertently. At that point, the choice becomes pay up or log off the site and restart your tax return.

Thomas Lain, 59, a computer-literate corporate cost analyst from Grand Prairie, Texas, says he plans to file a paper return after being thwarted by TaxBrain's free offer for taxpayers 50 or older. The offer requires a promotion code available from a pop-up on the IRS site or from the company's introductory page. Lain missed it, and later bounced between the sites in search of the code. By the time the company e-mailed him one he had given up and deleted his tax information, including data from four W-2 forms.

TaxBrain spokeswoman Katrina Couch says some users miss the promotion code — FDE479 — when they go directly to the company site, bypassing the IRS. She says the company is seeking ways to minimize confusion.

Other problems with free filing:

Shifting eligibility.

Tax firms are free to change eligibility for free services, and some have. That opens the possibility of a taxpayer investing hours preparing a return, then returning to the site to file with the IRS and finding out the free offer no longer applies.

Bad information.

For $60, the firm identified at the IRS site as "Free Tax Return" offers to advance IRS refunds, delivering the cash in three days. Initially, it told users the alternative would be to wait "three to eight weeks (or longer)" for payment from the IRS. In fact, the IRS issues refunds in less than two weeks for e-filed returns through a direct bank deposit.

The site is one of a handful of companies leasing the same tax-preparation software program. Others, as identified on the IRS site, include Efile-Tax-Returns.com (www.efile-tax-returns.com) and Free 1040 Tax Returns.com (www.free1040taxreturns.com/login.htm). In none of the instances do the sites clearly identify the sponsors.