-------- - 2:07-cv-04753-TON
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Case
34-4 Filed 03/05/08 Page 65 of 72

v.s. Depart,nent or Jastice

IIC:lflHII I. Hrm<
Ci1"1, I i ~ .. 1'~1Jfi,w,111 ..,.fldlo,i

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May9~2005

VIA P'ACs:TM?LE
Lori R. l,aqoa, Eaq.

Chia£, Public Conb'Ktl a Technology Branch, Gme:ral Legal S~CIS
I:memal °loYallll Scmc.~ ~ t oftht Treasuey
9SO L'En.f'alrt Plaza, $.W. 2d floor
Vlashinat=, D.C. 20026
'Re~

.IRS .Fne J'lle froa:ram

D~r M.s. Lacsar,:

ThanJc ,ou !OJ' your letter a!March 18 n,qui,smza advice nprd.it1g the lntcmal .Revenue
St11Vice•s ("IRS") Pi.t Fili:progam. AJ yo11 c:itpllined iri )'OUl' letter, thjs highlywc.:c:ssftd program
fa: nwin.s 1he conc.huiOl!I o!it. rhird :iull tlX•-fiUng season. =nid tM tR.S u preplring to enter renewal
ncgotiali gns with the Free Flle-Allianc:e, LtC ("the Alliance"}. Tn preparadon fbrthosc: discuS'sions,
;vnu have as.Id the Antitnt;.t Dlvjsion to pmvida legal advice repniin~ t.c ~tnt ex-pan.lion in the
~ope of fi'le cvices offered ~up the propm. While 'Che orifinal agrasment 'between 1be .l1tS
:and the AmarJCe ~ e , d tbat at !east •ixt)' -pmcnt otindhiiduat mpaym would be eligible to
rci:eivt Hl'Vi~s throup ~ ptOgralll,. 'this year- ~ out of twffil)' AJ'Hance mmbas offertd rhtir
iervi~ 'llllitbcnu nitrictiat1. to Ol'le.h\lJ'Adred parcem otindividuaJ 't!IXpayers. Jn ~0:nnaction with thls
expansion, yon mwe med us f.o mpcmd 10 two que;tiom:
Gi~ thcagrecmcatsinplacc, iathe provis:ian<>flh:c,aviet.\l lo alltaxpa.ym either
lil.Oli-eompetitivecr l vjolation o!the. amiQ'QSC law.1?

(I)

(2)
Can tbe Treasury Deputm111t/ll.S. Free File Alli~. or .ny other intcra1~
ftldccbolders pJar:e limitation& on The sccpe o! ec,ffe,rings: n,lateO to the FrH file ~graai-t

Befont Itespond to yc>Lll'specific questions. I would like to describemyundentanditt!I of'how
If my undemanding
b in,0:rm:t in 11ny materlal way. please advise me 1t your earUe&t convmicice.

lbe Frei File program \VOrb =md the .recent e.tpmsii:m _in program c:ov~gc.

Bac/wr,,lnd. The lRS •, .Free Fi!e Program is a p\lblictprivate pmt,ership 'b~ween the lR.S
and the Al.tianc:~(Wliii;h i, a ~om1m:ium 0Cui.x-1oftware fimu) dcsipd to provide no~$1 eJ1rctmruc
ta,cwpreparlll:ion and fiJjn,1 sei-v.ii::es to Americ:an tm.pa.ycrs. T~ baslc concept of the Free Fi1e
progam i$ rhat Alliance participants offer ~ac- s:eniices to the pubUc thro u,.)i. a web psgc hosted b)'

Z0"d

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Case 2:07-cv-04753-TON Document 34-4 Filed 03/05/08 Page 66 of 72

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t'iie ms 1t www.lr1.go11. Thls arrangement 111i11Gea CongrossionaJ inlti~ions lhar ihe IRS should
r.!01 supplant the private eleetrori.-ic a-preparation indwuy but :rather snauld work with the privue .
rector to rnak= ssh service$ av:ailableto tax~. Set. e.g.. H.Jt bFrt 101-S7J. at 38 (2002).
11
'the Alliance ca&egorius its :membca into fiv¢ tier$" .ac:cord.Ing to 1,bi, pereimtagc of
t:ucp:a.~s m whom a.cb .metnbct is wilHn,; Bll.d abls to provide he 5UVices. For instan,e• the
highest ti=- - TI er 1 ~ is Jeee:vcd for thaR .G""a that offer free servicei to OW!!t fifty percent of
~IXP•~r.s. 1 By pmvidml caUin. benefit• to tho higher lien, the 1icr scructun an.xiungcs .Alliance

putictpanutoap andehcirli'eeo& rin,parldlhu.sc oUecdvelyloaa hi~•thclRS'sgo alofl)C'Qvictin g
t.-ee servicm to at lcut sbuy percent ef'th.e t1Xpayin1 public.

Spc:citic ally, bigber-tier nicmbei, recci"' lWt> fc,m,s ~fmarketing priority. First. higher-tier
inembm 1n li9'ecl ftnt on tne Preo Pile website. Second. w.hana tapaye:r usct the webs.itt's vendct
Jdlfflify firms r.hAt •ill provide bim ar her fl'ei, ser,ice:s, tbit ~ltd idmtifi~
s electioA
first AocordiDglyj a Tier l member alw~ appears a'bcve a Tier~ member
higher-tier
Of'1ia tha:selectfon G91'd, Wi~n tin_ however, mm= is 2S0' advdage
listi,sgc
either 071 die ma.in
he serviaa to a grea~ perceruaae of lhe public:. Instead, rhe
provide
'that
fimis
,eivl!Jll, to thoaa
membtn Mtbin etdt lier randomly, For instanc1t, a Tier l
.AlJianee
list
both
wizard
and
web.site
cou1d (and often docs) appear above a ner t member
public
ot"the
pero,nt
llily
serving
01=.ber
t>fferiq ttee lN!S'\lfeu to all ~pa)Ws.

~-..,mr1a
manbm

Aiide from thci-r ,ommi1m.en1 to otf« he rerv:lccs., Alliame ~ants axe sf.lbject to
s•:vm.l oth1r requiremnu and prohibition1. f'int.. ~icipants most u.li$fy a seriitr ofprl"lacy.
c•lnfidentiality~ technio.J-proficiency, and ofher pmban1n~e stai.)darda de1.in~iod in the Alliu,.cc~,
o:per.ttln1 ...-amt and in !11 agree:p1.c:n1 with the IRS. S-ecDT1 d, Alliince participants m _proru"bited
.ft'a1:D conditioning 6:ee sffVicn on lhe pui-chase ,aid goods or service,. Third, participants are
prohibitt'd from tMriq .in.fmmatioa 'I/fib caeh other .regardi1J¥ the nature aad acope of their free
,1~.ice:5 bem thflf m"1Jy mat~ IJlOM serviees available to the pubZi~ !brmlJh lbe Free Pi1e

or

w-.b£it,e.

lo. its_ ftrst year of ope:ration (the 200:J filjng season)p 1'he free l'il• Al~e hlld Hvmteen
member,. inoludiq the two 1..-gest pnwidm ofta so.ftware, h:ltuit, Inc. (TurboTai) and H&R
Block (TuCul). Dw;mgtht 2003 filing soucm most AJJianc:, parti~paa1s ,:,nly oi?ered fm services
to axpaycrt who had .lea11 than a certain Adjusted Gross .Income f'AGr'). Those AGI limits ran1cd
Give.a thase per.an:ieTen, hO'Wf\'er> 119 million OUl o! 1l7 million
fii:mi 19,200 to
~ pment) w~ oUgiblt fO n:cd\i$ Free Pile Scrlices.
apptox.imately
(or
Jcdividu;d wcpa.~
A;~(mate1y 2.8 milllcn ta:q,a)'el'S actu8lly took advantage of the pragnim.

sn,ooo.i

Tier S is mcved for nrw eainn,s intO the UX•softwzre industry wha caiw>t rely 01'! p.ut
P7rformancc_to d ~ their ability io satl.Jf),1b.c AJiiance,s tec:hnical 1'11Qwrcmwnts. Instead,
Ti l!r S pmieipantl ,elf aemfy tha1 they can meet thos1t requirmnenis.. Tier S is ~igried to ensure
fllnt Arumct mmbfflhip doea aoi become a bwer to euteri11g the: ta•so.ttware ind'ustty.
1

1

0ntpa,idpa:iU wl an AGl limit ors1001 000 but only urved wcpa.yert filing Ferm

10-40:SZ.

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Case 2:07-cv-04753-TON Document 34-4 Filed 03/05/08 Page 67 of ..,_.....,
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The 2tl0S filiq .=&10J1 has \?Jilnc:95811 &mu-'llellnim:lllfr in the availability urno-coSt altVlces
ftJ'OUlh the Free File picgram. Ten out of1he tw~ty participants i~ tha 2005 Fres File ~gram
(in.eluding market 1eadtrs Inntit ind Block) offered Free File services to all uxpayerJ without
rtstrictia.n.1 A~mdmgl;y, this yn:rall individual U.S. wcpayen ftlin& a retum betwem l'anitliff'Y l
and. April l~ 200s. had the: optio:a ofroceiving frle frlin& .services through the Free File piogram.
As of March 25. 3.74 millio n•~ had filed thejr m:am.t ll\roUJh Ffl21!' Fite, i. 43.7 pm:cnt
ir.creao over the um• time tut )Gr,

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Am\udcs amangAJJmepaxti;iplntateprdin,jthis exp-onu ed.ivid= . Several AlliiZ\Ce
p111tic:ipents hiwt •thutiasd cally •braced imreltlicted free service beca11sc they b.r#e fo\lnd lb~
Fi:-i::e File prolf1I01 to be an cacc1ive method ofcroswellin1 tbc:ir1ald goods andstrVices (e._s,, sta.te
filing, sel'Yi~es, ia .-dvii:e, flnaneltl Pf0duct1 m,d aerrices, etc.), Other Alliance inem'be:rs arc
ot)pOSed to unremcicd he ofti::rina,, Those opposed to Lhe expan1ion ·ol he sl:'l'Yiecs da.im ~at
tli.t lRS,. through the nee File propm, ha1 become a a/uc10 lJlaiven:11 provide cfirer: e1amuic
tax.pnparadon smkes. Moreover, tbeycllfm that the Free File program•, tierffl'LJatiJ.ro is in pan
n,pOlldble tor tbe expl!Slkm ofthe pivgram'• coverase. They are now lobb)'Ull TreU\lljl and/or
the lRS to limit lhescopeoffrec .,,;ces ~Is1'le rhraugh lheprogram. Allianc:emcm~ers mthii
c.1n1p clam that. withclut Treul.lr)'l.laS intffYcntlo11) the wichedced expansion or tbe Free FiJe·
Jll:-OJr'IID will redllce irwemne.ni. hmova1iou and competition. in the rnarlcl:l' fOI' tax-pr=puatlan
M,ftwarc.

With ttw undmta.adin& l n6w t\&rft !O your 111i=ific questions.
(J) Give1t tllt .,,111401 1 in p(oc,. t8 tht Jlf'OWJW'll
CClltlptititiVfl 0, ti

~,anon of,,. a'lltiOII.Jl IDW1?

offr" W')ltcu to all taxpay,rs eitJIB tmti~

Tlw pwm1 ava:il&lrilit)' o!unrestricltd hoc 111"'1.icas lhrough the Eroe File prepam app,nn
sb:nply IO betbc,-u ltGf~tio n1mong mcmbsn ofil:ieFrceFilcAlllince. As long u Alliance.
members ue m4tp•dem ly cxpmli11g lbdr f'rfl, offietinp. s1,1r;h expansion and tb.c compimi'tion
driving it era p:rflCilllly 'Ck 101\ of aghitic.t the aatitniat Jaws win dasigu~ io p.roteel. Several
A ltim:e mem'bm ur.dicaze dun they winin,aly PJ')Vide he federal filing services b~ause doing 90
increuea their sales otrun-pr(ce m-pnpn don and nnanciaI~adviJOlys1:rvicc11. Such "JoS&lcadd'
e a;,n.com11. SH Suir .sp.,,tPlug Co. Y, Champio" Spark
:st:1:-atceias pnerally do net 1'lile eom,,titiv
111
Pl"g Co.~ 840 F,24 12531 1256 (5 Cir, 1981)~ h11i&ls Bros.. me. v. AmfflCillt Distilling Co., S70
F.2d 848~ 856 (i>- Or~ 1977); lhryoullolrling, Im::. v. J)r, l't1pp., Co.~ 11 al., $43 F. Supp. llSS, 1268
(W.D. La. 1'12).

~olbing 1hava nwiewed suggest, that Alliance m'1llbet; are coopm.iing with each at.Ii.er

in this qpnsion. Smlarly. nolhing 1have reviewed ~~rs that Alliance memben are ustnJ
tilt! pro,nm to signal their compeutiw i:neention. t~ cam ocher either in connect.ion with ftta
teivicc, or andllarypald Sffllices. lfu, fact Alliance members were roo.rdil'lating their

rl~-npeticive efforts er 1U'iDI the piosran,. 1e> fac:iUtate such ~tdma'Cion, this cowd Bi~
~OJnpctitfve concems tha1 the ~ Division rmgh1 want to Jook at more cJoseJy.

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While los&-Jead9t' ttrtfBSia bur a supemcial resemblmce to pntdl1ory'(Jricir,;, th~ tWO can
t,e euiJy distinguished. A mm enpgeci io. r,rcldalory pricing 1u001ec1S by pricin1 below oo,i io the
l1ope: of drivinJ ~t compet,'tcn and l•ter n,coupin; its &hort-lcrm Josses b:y cbarJing a monopal)'
j)ric:e. In eonU'Uf, a Joss-leader 1n1egy do;s not dc:JJimd on tbo elimination of compeli\ion ;nd is

in1cud immtdiaie?y~4'.able In tho thWI u:rm• .PhUlip E, Areeda, lterbert Hovenkarnp, A,atitrWJt
-.t 470-7J (2d td. 2002). Consiatcnt with that, it appcm these Free FHr:
Law~ § 742£, Voh
d free ,etrices. belie,.,, ttat daingso profitab1ymc:reas11 thttlr
offerunrestricte
man~e:rsu,a,
l\llictct
To our J:no..vledF. no ot1e baa sugested that the o.ffmng
service.a.
and
sales oftbU-pricepdllOtl
.PUc program bas ~vm IT\YOM from die tax-software
Fm:
the
thrOup
services
of u:nmtrictcd he
Accoidmgly, the re:ent txpansion of free sentiees
it.
mu=rmg
ftum
anyone
ptffCl1ted
er
·segmem
~ea. f'<I~ o!r,rQ~eom_ptriuv, prieitcutrin3.
to
limply
a,,pelfl
PUepros,am
tlU'Oql\ Qle Jree

m.

It is zlso worth not.in.a thu: free PUe•s tier atmeture does not appear to be cai&SinJ the
e~pansi0az ita mvemio-1 free sffllicci. It iniuc -up ta a-point-'tbal the tier Jfrut't'lltt en;owagies
Alliance partic:ipants to =xpand the ~ oftbeir free otrerings. the higher a. Jinn•, Ucr. the mare
pn:nninent it its placemeit on lhc website and -via. fhe wizard. Undcr'lht lier 1tn1e11.1n; ho'fl'~ver. the
b~ts ofa film apendtng its h o.t?erinp are exhausted on.ce the mm offi:n .free m,,icn to fitly
p~mt ot1he cax-payins pU\Uc (Le•• the ihmbold ntceSW)' to acbieve Tier 1 mamb¢:Sbip). TI ta
-.vobmta and 'Che 'Wizard trcal all ria I participants equall)', That is. the webli~ isjul5t u likety to
list a. Ti.tf l putjcip.m: (ltld whcrth1r fhat panieipmt ofi'm he SCf\t!e:es 10 filly pemmt of taxpiyers
or on1-Jmadr9d perctm. Ae=rdiqly, anoet an.Alliaztce mambar o°'" free servicos to fifty s,tresnt

oftaxpaym, it derives no ~benefit Ji-om the Free Fila wabsjta by ex.p:mdbig the ~vallabi!ity
orits free #Ni"5.

'Moreover, it-=s unlik•lylhat'W\maictcd .&ae ae:rviceswil1 suPJ:11esemnovation in thcta>cP."IJ!•ation mftwar',e sector. S01111: have <:ontended tbat b)' gjvin& UN.y redcnl tu.•prcparation
~~ccs, A1li1nc:e mambex$ Jose all inandw ta inv1:1t in re:semh and development. lbi.s view
i@.uorn u,.e 1\Jll compctJilvc utiHty of dac ft= FUe propn. Whilt is is nue th1t '-be ftte federal
products thamelve& do 11.0l gammte revenu~ they are $LIU u..efill u a tool for marketiJlg other
51,,rvli;as, Accordf:aaly. Alliance mem.ban. still haw incentivu to iinprovt their Free File pn,cJ..-i;ts

tu,ca,use dam.: so mlku tb0e1 tee prodvcis a mora effmi~ ioot for crocs-m.arl«:tb,.g fu.11-price
·

gciods and ~e.s.

(2} Orn d~ TNo~ lHpt,rrmoctJJR.S, Fm FUe .Alllo11tt. or a11y ozher i,iwt11ed .staaholders
plau l'lmslatit;,,u OIi lb, UOJ'I o/o/farittl,8 r•rtueti to the F>w Filt: ]N'O'train?

Thi, ts really two questions, the atl5w.ms to whid, tum on who i.s imposing the limitations
- i.e.• me J041etnmem or members ofthewi:-so: ftwanin~. ConJ.lstent with ourpreviou!I ild-vicc
(.rr.s my lauer co Linda R.. Horowi~ dated April s. 2004), hoth ·r:euur,r and/or this JRS arc fret to
impc;,.se limltatiom 011 the seope o!rho Fni• F:Ue p10,am without risk ol antitrust Habilicy. The

Supreme Coi.zrt bu ma4e clwd\at nefthar the United State&nor f f ) ' ~ •~oftbe exetJutive branch
of the Oovcrnmcar of die Unittd Sutea'' fs , 'Jmon" subject to potenti.-J JiabilitY \&rider fhe
Shaman Ac~ CJ"'1td States Poual Sv,,ic.-. v. Flamt11,o lndw .. Lrd., 234 S. Ct. 1311, 1328 (2004).
lbal said, Wf!! WOll)d •till fftCO\ll'lll you to llllow members of the !wc-so1twart jndu.stry ro

inctJpendenllypriee tbr;uprc,duc-cs as fhoy see fit Thetreod towan:1& umesme.ud Free File otl'erings

se ·=

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 Case 2:07-cv-04753-TON Document 34-4 Filed 03/05/08 Page 69 r.s,vrw
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~coufflg~. 01"
.11,:pem to be a filllctioiuf competit:i°" woris Alliance incmbcra and should. be
ible for th=
respons
f$
and
must balanm ca:mpeting policy goals
CIJU1'e we recop2d that tl:ie
posi\ionecl
klDS"t:rm viabilityoftkFM 1Uc pre.gram. ln ll,ttt oftbit, your a:~y i1 uni~uclywell, und
Allwic
Filt
Frie
tc, u1m whctbsrthe apansion of ffee Sef\lice& thrutens tht viability ofth1
\lalue
mu
\
ICCQUll
rJ1e PNe File program. ln.making)'OUr wiamnem, we tneo~a,.e yoa to Take into
n public.
r:t.iat um:l'atrioted. free tax.-pn1)at:ld.cm tt'l'\l\cts represent to the Amaa
que.stion. The:
Collectiw action by th" Free Fili= Alliance or iu mamba's is • diff'eremotpric:a
cutting.
f'onn
a
NNUCo
in
is
e;,.pansion of' ftte ~ u 'tblvu;h Ula Pne File prosr.
a fOn"n
libly
i1
service
free
sm:h
n:strict
to
A."cn:din1ly" my aprc(l;t fflt ll'flon& AUiJncc mcrnbm
ly
sai01Js
take
would
n
.Divisio
trust
And
lhe
such..
or price fi~iDI (or .u 1-ut priee inabUizatio11). A,
o-n
ming
pardes
third.
or
.firms
ware
tq..soft
any coOldmaied attanp l by Allia:nc:e mc,nbm, athtr
dy, thci •.\ntztru.s1
Uiei, behalf, TO tcatdd tee tcf\'ices 1vai1,bledtrouJt, th~ frN Fjlcpmgram. Sil'IWl
File ]lrOpm as
Frte
the
use
tc)
rs
membe
e
AUl.aa~
'C,i..-isian wowd be 00D.CCll:led by any anem,ts by
Ire~ or paid).
(eidttr
;,es
orswvii
goods
after
rs
membe
a.m=auism iocca.rdmtl• 'lhe tmncOt'I wlrlch
r.iotif.ljng u,
your
~
"'11cl
we
repd,
either
Sbowd the IRS bceome.aware of~romq,u 1r1
.
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R8'\a B.Hea e
Cruel; NetwOtb & Tcelmology Section

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Ib.oma1 0. Bam,:tt, &q.

David IC. Barna, Esq. (CC:GLS:PC'I'L-2N'D:J>8amet)

Pile
, -wtlilc my acr-m ,a cnang Alliance msmbus ro mtrain lh• avaUabill\y of Freeh&ve tlut
y
pcra.U
m
~M~ 'Mlllld be of grcat intetnt 10 the Antitrust DM,ion~ Alli~c . mmb
vialllfngtho
t
wlrhou
es
mcuur
rictivc
optrcst
enttoad
govanm
nf~IJOUit)ytopcttticm the
Fnlpr. l11c.. 365
&IJ!u::rust laWB. SH la.slim Raill'Oad Pruid1nr1 Con/trencsv. Nol7"r Moior
(1965).
6.57
V.$.
31J
11>1'.
Pen1u·111
v.
o
Amaric
of
.t
U.S. 127 (1961); U,,.W Min~ Wor!w1