A legal deal between the IRS and tax filing companies such as H&R Block explains why e-filing often involves shelling out part of that refund. Lower income folks (AGI less than $52,000) can get free federal e-file, but the corresponding state's e-file always costs extra. The IRS has explicitly agreed to not provide a free e-filing option for all taxpayers (despite the cost savings to the IRS) because of this deal.
Two things are disturbing. One, that a government agency can not only decide against providing a service, but can enter into a binding agreement not to (as opposed to Congress trying to prevent competition). Two, that the lawyer for the tax preparation companies threatened to paint the IRS as "Big Brother" if it ever decided to provide the e-file service.
Last time I checked, your social security number is not a mystery to the IRS.
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