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Small tax Web sites angle for big bite

Smaller tax preparation firms are using a human touch--and counting on human error--to get a piece of the blossoming online tax market.

Smaller tax preparation firms are using a human touch--and counting on human error--to get a piece of the blossoming online tax market.

Unlike Web tax preparation giants H&R Block and Intuit, which offer sophisticated computer programs to fill out returns, companies such as TaxLogic.com, e1040.com and Taxes4Less.com mostly have employees complete customers' forms.

At Taxes4Less in Los Angeles, customers fill out questionnaires online, and their tax returns are prepared by a tax preparation professional. The returns are reviewed by a certified public accountant before being returned to the customer to sign within 36 hours, according to president Greg Yulish. The customer then mails the forms to the Internal Revenue Service.

"We offer a real person to guide you through the process," Yulish said. "Intuit and H&R Block check returns on one level. We can provide two."

With the April 17 filing deadline just a few days away, smaller firms are scrambling to attract some of the 33.6 million taxpayers expected to file online this year. The IRS expects that number to grow 9 percent every year for the next five years.

Analysts have said that this is a pivotal year for online tax preparation companies. People will be attracted or discouraged from filing online depending on how well Web sites perform, and customers will begin to develop loyalties to certain sites.

For smaller firms, competing against established companies is daunting.

Taxes4Less bought ad space on CNBC, CBS MarketWatch, TheStreet.com and IRS.com. Yulish said that click-through rates on most of the sites were disappointing, except for on tax services directory IRS.com, which brought in more business than all of the others combined.

"The site gets the same kind of traffic as H&R Block and Intuit do," Yulish said.

So on Tuesday, Taxes4Less bought the IRS.com directory. By the fall, the company will be the sole tax prep site on IRS.com.

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The site draws about 5 million unique visitors each month, mostly because people think they are connecting to the official IRS site, which is IRS.gov.

Mistake or not, once taxpayers click on IRS.com, they often do business with the firms that post links there, Yulish said.

Yulish said his company also will try to strike a deal with H&R Block or Intuit to offer one of those companies' automated tax preparation software to customers. The software is faster, allowing customers to fill out their own returns and file electronically in one sitting instead of having to wait up to two days, as they do with Taxes4Less' system, Yulish said.

The larger firms also can do it cheaper. H&R Block and Intuit charge $9.95 for their automated services, and Taxes4Less' fees start at $35 for federal returns and $15 for state tax returns. e1040.com charges $39.95 and $19, and TaxLogic's prices start at $75.