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Free File Alliance Between IRS and Private Software Companies

The Free File Alliance is the coalition working with the IRS to provide the Free File Program to American tax fillers. The Alliance is a limited liability company or LLC formed by 20 different tax preparation software companies. Their mission is to provide an alternate way for moderate to lower income American families to prepare or file their income taxes online in a fast, free, and safe way.

The Alliance helps to give 70% of Americans the option to file their taxes for free with some of the industry's leaders in tax preparation software. Since 2007, Alliance members are continuing to work with the IRS to improve the program and agreed to remove controversial ancillary offerings such as refund anticipation loans (RALs).

Because of the partnership with the IRS, the Free File Alliance has allowed for more than 25 million returns to be filed through the Free File program in the past seven years.

In January 2016, the IRS announced that it would launch a new version of their Free File program. The IRS pairs with the Free File Alliance to create options for taxpayers to file their federal taxes free of charge through private software companies.

For 2016, the partnership added more state tax return options as well as easier-to-use W-2 input information. Easily importing W-2s can cut down on errors and make the tax process straightforward and faster. Not all providers work with states to provide free state return filing, but even if they do not, taxpayers can often still file their state tax return using the same software for a fee.

Why was it formed?

In November of 2001, the Office of Management and Budget's (OMB) Quicksilver Task Force established 24 e-government initiatives, which were all part of the President's Management Agenda. The initiatives were intended to improve and expand Government to Government, Government to Business, and Government to Citizen electronic relations and possibilities.

IRS Free File was such an initiative. The IRS was instructed to provide free and secure online tax return preparation and filing services to taxpayers. In accordance with this OMB directive, the IRS began working in partnership with the tax software industry to find a solution. As you can infer at this point, the result was the formation of the Free File Alliance, LLC. A group of tax software companies who provide commercial online tax preparation and electronic filing services was now working directly with the government to provide a free solution to consumers.

The government believed a partnership with private industry would: provide taxpayers with higher quality services by using the existing expertise of the private sector; maximize consumer choice; promote competition within the marketplace; and meet objectives in the least costly manner to taxpayers.

Restrictions

Only certain taxpayers will qualify to use this program. It's only available to those taxpayers who have earned less than $64,000 for tax year 2016. The maximum income changes every year.

There are form options available to those who have earned over $64,000, but these forms are essentially an electronic version of existing paper forms. Not everyone is comfortable with taxes or understands their financial situation fully enough to use these forms, however.