"We issued a request for information to see what we could do to reduce the barriers and costs that the private sector bears in offering e-filing," said Robert Barr, IRS assistant commissioner for Electronic Tax Administration. "We're looking at what else can be done to drive the prices lower or possibly to free."

Barr refuted a report that said that the agency proposed that software firms offer free or low cost e-filing and tax prep services in return for easier access to taxpayer records.

"There's no truth to that," Barr said of the article published earlier this week by National Journal's Technology Daily. While Barr said the agency did tell companies their suggestions could be monetary or non-monetary, he said, "We will not compromise taxpayer privacy. Consumer privacy is guarded and protected more than the gold at Fort Knox. It's not available for barter."

The agency is looking to software makers to devise models under which they would provide low or no cost tax prep and e-filing. Several models are in place already, Barr said, citing a program in Oklahoma under which all state residents are offered free tax prep and e-filing, and the state pays the private sector on a per-return basis.

Barr noted that many vendors have already made some free services available online: turbotax.com from Intuit, H&R Block's taxcut.com, 2ndstory Software's taxact.com, and hdvest.com from H.D. Vest, but some companies charge a fee for e-filing that consumers are reluctant to pay.

"Our research and research done by the private sector shows that the reason many taxpayers don't e-file is because of the additional cost," Barr said.

The IRS hopes to see 42 million 1040 returns filed electronically next tax season. The agency exceeded its e-filing goal this year, with a total of 35.3 million 1040 returns e-filed as of this week, up from 29.3 million last year, Barr said. Of 125 million 1040s filed, Barr said 97 percent can be filed electronically.

--By Melissa Klein

Send comments to information@smartpros.com