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Court Nixes Class Action Over Tax E-Filing Fees

(CN) - The 3rd Circuit affirmed dismissal of an antitrust class action over the fees charged for electronic tax preparation and filing services. Though Congress has pushed for paperless filing, some e-filing fees are necessary to achieve that goal, the court ruled.

In 1998, Congress announced its plan to have at least 80 percent of tax returns filed electronically by 2007. The IRS responded with the "Free File Program," a partnership with an alliance of private companies in the electronic tax preparation and filing industry, including Intuit and H&R Block.

The Free File Alliance initially agreed to offer free e-filing services to at least 60 percent of taxpayers. Three years later, in 2005, the IRS introduced caps on the amount of free e-filing services that FFA members could provide. It explained that the ceilings were needed to keep the Free File Program afloat and to ensure that e-filing vendors didn't go under.

Two taxpayers filed a class action in 2007, claiming the e-filing fees violated the Independent Offices Appropriations Act and the Sherman Act. They claimed the cap on free e-filing services constituted an illegal horizontal agreement, because it forced taxpayers to pay "supracompetitive prices" for those services.

In dismissing their claims, the district court acknowledged that the ceiling provisions restricted competition, but said the FFA members were shielded from antitrust liability, because the IRS had mandated the anti-competitive behavior.

The Philadelphia-based appeals court agreed that FFA members couldn't be held liable for acting on behalf of a government agency that, in turn, had been implementing a "clearly defined policy or program" established by Congress.

Judge Leonard Garth emphasized that the ceiling provisions "were not included at the insistence of the FFA members."


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