IRS criticized for eliminating telefile program

Low and middle income taxpayers are paying millions of dollars in fees to file their tax returns because of an IRS decision to end a free telephone filing service, an inspector general said Tuesday.

"Once again the IRS has made a taxpayer service decision based on questionable data," said J. Russell George, Treasury Inspector General for Tax Administration.

George, whose office does independent oversight of the IRS, said about 2 million individual and joint taxpayers used the TeleFile program in 2005, when the IRS, citing declining usage and increasing costs, shut it down.

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He said about half of these reverted to filing paper tax returns, slowing the refund process and increasing IRS processing costs, while those who paid tax preparers or purchased software paid nearly $24 million to file their taxes in 2006.

The TeleFile program, instituted in the early 1990s, allowed people with simple individual or joint tax returns to file at no cost by using a telephone keypad.

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"The IRS made a foolish mistake in eliminating Telefile, and their error is costing hardworking Americans time and money," said Senate Finance Committee Chairman Max Baucus, D-Mont., who joined the top Republican on the committee, Sen. Charles Grassley of Iowa, in criticizing the IRS decision.

The IRS, in response to the inspector general's report, said it believes it acted appropriately in choosing to end the program and did not think the move would have any long-term negative consequences on its goal of getting more taxpayers to file electronically.