More Americans than ever have filed taxes online this year, according to IRS figures, and that's put pressure on online tax-preparation companies to prove their sites are fast, secure and easy to use. A crush of late filers is expected between now and the April 17 deadline.
It could be the best chance online tax sites get to sway people from filing written returns and switch to filing via the Internet, said Jaime Punishill, senior analyst with Forrester Research.
"This is the defining year for this industry," Punishill said. "With 2 percent of the U.S. population expected to file online this year, this is going to put online tax preparation on the map."
But the firms are in a situation similar to the one e-commerce companies found themselves in this past holiday season, bracing for an unknown volume of transactions.
Just as heavy holiday traffic knocked out some Web shopping sites, the strain of a sharp spike in traffic last February caused H&R Block's site to suffer a series of outages and other problems, including the exposure of some customers' private tax records to other customers. The site was shut down for a week while technicians fixed a "software glitch," company executives said.
Gene Goldenberg, an H&R Block senior vice president, said that despite some "bottlenecks," the company has bolstered its computer systems by adding servers and "fine-tuning" its software.
"We expect a big (traffic) peak, and we are ready for it," Goldenberg said. "We are totally comfortable with our preparation."
H&R Block's problems struck during the first of the two annual tax filing peaks--between New Year's and the end of February and between March 20 and the April deadline. About 77 million of the 127 million U.S taxpayers file after March 20.
"If Block's troubles were to happen in the last two weeks, then it would be a stake through the heart of the online preparation industry," Punishill said.
Intuit, known best for its personal finance software Quicken, said it also has beefed up its site by adding more customer service representatives.
The sites work in a similar fashion and offer many of the same features. Taxpayers log on and are asked a series of questions, just as they would be in a conversation with a tax professional. The automated systems make decisions on how to file the return.
After the return is completed, customers have the option to file their return electronically or to print it and send it by mail. The companies, which both charge $9.95, say they can handle even the most complicated tax return.
H&R Block and Intuit also offer tax preparation software that can be bought in stores or downloaded off their sites.
Online tax forms are considered to be more accurate, because IRS workers don't have to re-enter the information into a computer, resulting in a faster refund, Intuit vice president Bob Meighan said.
But a customer does have to mail a summary, because the government still requires a taxpayer's written signature. Goldenberg said H&R Block has asked the IRS to eliminate this requirement.
Filing online isn't for everyone, however.
"Doing income taxes over the Internet is for somebody who is already comfortable doing their own return," Goldenberg said. "If someone is more comfortable having a tax professional doing it for them, then that's who they should have do their taxes."