In a hearing in front of the House Subcommittee on Treasury, Postal Service and General Government last week, Charles Lacijan, chair of the IRS Electronic Tax Administration Advisory Committee, reiterated the committee's recommendation that the IRS stay out of the market.

"ETAAC recommended that the IRS not develop their own program for at least two years," said Lacijan. "Because it seems like the marketplace is moving in that direction anyway, and government involvement would stifle competition."

Lacijan said the IRS's request for information created confusion about its intentions.

Industry members fear that in its mission to meet the mandated goal of 80 percent of tax returns to be filed electronically, the IRS plans to hone in on their territory.

"It almost appears as if the federal government is saying to us that if we are going to achieve the goal of 80 percent electronic filing, the government is just going to have to go and do it itself, as well as expand into the offering of tax preparation services," Ed Black, chairman and chief executive of the Computer and Communications Industry Association, told Congress. "We believe that would be a fundamental mistake and would actually endanger our ability to achieve the electronic filing objectives the Congress set forth as national policy by impeding the development of the competitive market for such services."

Citing statements by IRS officials that hinted at the agency's intent to compete with the industry during his testimony last week, Black added, "While other statements by the agency have disavowed such intentions, these statements are very troublesome to those of us in the private sector."

-- By Melissa Klein

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