Am I the only holdout who refuses to use online tax software or e-file through a third party?
I refuse to give my tax data to anyone except the IRS. Putting my tax data online with a third party is out of the question. I use tax software but only software I install on my own computer. After I’m done, I print the forms and send them by mail, because if I e-file from the software, my data will go to the software vendor. That’s not acceptable.
The IRS promotes Free File Fillable Forms as an alternative to pencil-and-paper forms. If you think you are filing directly with the IRS when you e-file with Free File Fillable Forms, you would be wrong, although the IRS does its best not to mention that fact. By hosting a massive set of FAQs, the IRS creates the impression that Free File Fillable Forms is a service owned and operated by the IRS itself.
It’s not true.
You get the clue when you click on the "Choose Fillable Forms" button on that Free File Fillable Forms page. The next page says (bold by me):
Please note that by clicking on this link, you will leave the IRS web site and enter a privately owned web site created, operated and maintained by a private business.
The information that this private business collects and maintains as a result of your visit to its web site may differ from the information that the IRS collects and maintains. (please see the IRS web site privacy and security notice for privacy protections IRS provides to web site visitors).
By linking to this private business, the IRS is not endorsing its products, services, or privacy or security policies. We recommend you review the business’s information collection policy or terms and conditions to fully understand what information is collected by this private business.
Because it’s a generic redirect notice, I’m not sure if everyone pays that much attention or really understands what’s going on.
So who is this private business that the IRS sends people to? If you click on the privacy statement or terms of service links at the bottom of the Free File Fillable Forms landing page, you will see the service is operated by Free File Alliance, LLC.
Who is Free File Alliance, LLC then? Its "About Us" page says it is "a coalition of 19 industry-leading tax software companies." It doesn’t say which exact 19 companies. I assume the major ones Intuit, H&R Block, and the like are members.
When you use Free File Fillable Forms, where are you storing your tax data? Not at the IRS. When you e-file with Free File Fillable Forms, who’s transmitting your tax data? Not from you directly to the IRS. Possibly through one of the 19 member companies by round-robin random assignment?
Free File Fillable Forms fails my test as a product that deals directly with the IRS. I’m sticking to desktop software and mailed forms.
This year I bought H&R Block At Home 2010 Deluxe Federal + State + eFile from Amazon for $21.99. It will do both federal and state returns. It’s almost half-price as the more expensive TurboTax Federal + e-File + State 2010 ($39.99) and it costs the same as the price leader TaxACT Ultimate Bundle ($21.95).
I tested all three tax software two years ago. They all produced the same results. H&R Block announced in October 2010 it would buy the maker of TaxACT for $287.5 million. According to the New York Times, the deal hasn’t been approved by the regulators yet.
If the IRS wants me to file my return electronically, it’d better offer a direct interface. It’s easy. It only has to publish a data format and tell the software vendors to produce an output file in that format. I would then upload the file directly to the IRS. That’s how Canada does it. UK’s tax collection agency HMRC operates a free, direct-to-taxpayer online filing service. If UK and Canada can do it, so can the IRS.