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State e-tax plans worry taxpayer groups

California is set to expand state services for e-filing next year. But some say even a tool as seemingly harmless as an online tax calculator could be used against taxpayers.

California will expand government-provided services for online tax filing next year, despite opposition from tax preparation companies and taxpayer groups.

The state's Franchise Tax Board voted Tuesday to provide residents with online versions of all major state forms by next year. Currently, only the 540EZ form--the state equivalent of the federal 1040EZ for the simplest tax returns--is available for direct online filing.

The state's 540A will be ready in an online version for the 2002 tax year, according to Tax Board spokesman John Barrett, with the 540 form online by summer for those filing under an extension.

Each form will let taxpayers enter information, perform basic calculations, and submit data to the state electronically. But the forms will not include advice on deductions or other matters.

"It's going to be straight 'fill in the blanks,'" Barrett said. "There won't be any advice at all."

The online version of 540EZ became available last year. Previously, California taxpayers who wanted to file electronically had to use software or an online service for a commercial tax-preparation provider such as Intuit's TurboTax division.

California legislators and administrators have lobbied to increase state-provided services, saying they will make efficient, timesaving services available to more taxpayers.

Similar arguments have been made on a federal level in support of proposals for the Internal Revenue Service to offer some form of electronic tax forms. Such plans were put on hold earlier this year, when the Bush administration approved a plan that basically codified existing programs instituted by private tax preparers to offer free electronic filing to low-income taxpayers.

Tax companies and taxpayer advocates argue it's a dangerous precedent for the government to get involved in providing tax preparation services. Even something as seemingly innocuous as an online tax calculator can become a tool that can be used against taxpayers, they argue.

"I think simplicity should be the watchword" for government-provided online forms, said Pete Sepp, vice president of communications for the National Taxpayers Union. "It should be as close to doing data entry online as possible. Otherwise, you run into a situation where e-filing becomes another way to deny taxpayers the deductions they're allowed."

About two dozen states offer electronic tax forms, but California would be by far the largest state to offer all its major forms for online filing. Sepp said the state services could set a precedent for federal plans.

"As long as the states are to remain these laboratories of democracy, anything they cook up at that level may eventually take hold in Washington," he said.

Intuit spokesman Scott Gulbransen said cooperation between private tax preparers and government has worked well on the federal level and for most states and ought to be the model for California.

"At a time when the state of California is facing a $21 billion budget deficit, you have to wonder why they're spending money to duplicate services already offered by the private sector," he said. "We feel the private sector has been doing a good job of ensuring that all taxpayers have access to the benefits of electronic filing."