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Taxpayers reluctant to file over Web

A new study says the growth of Web-based tax filing has been "abysmally slow," even as other types of electronic filing continue to gain popularity. Online tax services say the study is wrong.

Electronic tax filing is booming, but the adoption rate of Web-based tax filing is "abysmally slow," according to a survey by Jupiter Communications.

Intuit disagreed with the study, saying it's seeing 10 times as many Web tax filers as last year. But H&R Block, which offers limited online tax filing, said the survey accurately reflects what it has heard from customers.

Tax returns prepared on the Internet are still a tiny fraction of the 20.2 million returns filed by March 5 that the Internal Revenue Service classifies as electronic. Electronic filing includes returns prepared with desktop software such as Intuit's TurboTax and sent over the Internet and returns prepared by a tax professional and filed directly to the IRS electronically. It also includes returns filed over the phone on the IRS's TeleFile system.

Jupiter's survey of 2,100 households with Internet access revealed that less than 2 percent planned to file their returns using the Internet, and cited security and privacy concerns as the main reasons for their reluctance. Consumers are becoming more comfortable with electronic filing, but "they are still hesitant to rely on the Web for such an important transaction," Johnson said.

H&R Block spokesman Gene Goldenberg agreed, saying online tax filing is still a novelty. "People tell us they are not eager to do it," he said.

Those fears may have some justification, because the kinks have not been completely worked out of the overall electronic filing system. Last month, the IRS riled many taxpayers by delaying confirmation of electronic returns, and a power outage at Intuit took down its online filing service for 24 hours.

The news isn't necessarily bad for companies like Intuit. Sales of its tax preparation software for desktop PCs is up 33 percent over last year, when it sold 3.3 million copies of TurboTax, said Larry Wolfe, senior vice president of tax products.

Of the 1.25 million Intuit customers that had filed electronically by March 15, 225,000 used the Web to prepare and/or file, while the rest used desktop products. Web TurboTax doesn't require a software download, so users can fill out a form online and send it over the Internet. "When you compare that 225,000 to the number of people that use the desktop product, it's certainly a small area but it's rapidly growing and meeting our expectations," Wolfe said.

"The learning curve is extremely low to do a Web tax return," Wolfe added.

But the infrequency of tax filing also inhibits adoption of Web-based products, said Jupiter's Johnson. E-commerce has taken off because shopping is done frequently, but because taxpayers only file once a year, "there are fewer opportunities to change their habits," he said.

That situation has implications for other industries where large transactions are common, such as mortgage lending and car buying. In those transactions, consumers are "placing a much bigger bet than buying a book or CD, and to project similar growth rates is risky," Johnson said.

The IRS doesn't offer tax preparation and filing directly from its Web site and has no plans to do so because the security level of its own computers is not high enough, said spokesman Larry Wright.