IRS launching free tax-filing pilot program, in threat to TurboTax and H&R Block
Zachary Halaschak
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The IRS announced Tuesday that it is launching a pilot program for a free agency-run electronic filing system, a threat to major tax preparers such as TurboTax and a move that prompted immediate criticism from Republicans.
The IRS was given $15 million as part of the Democrat-backed Inflation Reduction Act to look into an e-filing system, commonly referred to as “direct file.” The IRS said Tuesday it has built a “functioning internal prototype” of the tax filing tool and intends to launch a pilot program sometime next year.
“The IRS is committed to delivering significantly improved services by providing taxpayers with tools, information, and assistance to make it easier to comply with their tax filing obligations,” said IRS Commissioner Danny Werfel. “Direct file — used by numerous tax jurisdictions around the world — has long been discussed as an option for improving the customer experience for taxpayers in the U.S.”
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The right-leaning Taxpayers Protection Alliance blasted the move.
“Someone should tell the IRS that American democracy is predicated on the separation of powers where Congress passes laws and the Executive Branch implements them,” said TPA President David Williams. “Instead, the IRS unilaterally built a pilot program to give itself the power to prepare and file tax returns without congressional approval and before a study on the feasibility of such a system was even completed.”
Republicans have taken issue with the part of the Inflation Reduction Act that granted the IRS $80 billion in new funding. On the matter of a direct filing system, conservatives fear giving the IRS too much control over all aspects of taxation. In a Senate Finance Committee hearing with Werfel, Sen. Mike Crapo (R-ID) said having the agency act as a tax preparer, tax collector, and tax enforcer could create a conflict of interest.
House Ways and Means Chairman Jason Smith (R-MO) said that citizens don’t want to give the IRS “such sweeping control and authority” but that the Biden administration “refuses to listen.
“The announcement of a pilot program raises serious questions about how long the Biden administration’s decision to move forward on such a program has been in the works, whether the agency had any intention of following Congress’ direction that this study be conducted in an independent and impartial way, and whether the IRS is acting outside the law in establishing a program that Congress has not authorized,” Smith said in a statement.
Meanwhile, Democrats cheered the announcement. Rep. Richard Neal (D-MA), ranking member on Ways and Means, praised the news on Tuesday.
“With the Inflation Reduction Act, Democrats kicked off a transformation of the IRS, reversing decades of Republican-led neglect and breathing new light into the agency,” he said. “While Republicans circle the wagons to protect wealthy tax cheats, Democrats are delivering on the promise of the Inflation Reduction Act and building a fairer tax system for all.”
The move sets up the IRS to be in conflict with the $14 billion tax preparation industry, which includes major companies such as Intuit, which runs TurboTax, and H&R Block. The Washington Examiner asked both for comment.
Rick Heineman, a spokesman for Intuit, told NPR that the move by the IRS is unnecessary.
“A direct-to-IRS e-file system is wholly redundant and is nothing more than a solution in search of a problem,” Heineman said. “That solution will unnecessarily cost taxpayers billions of dollars and especially harm the most vulnerable Americans.”
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Werfel and others have emphasized that using the government program to file taxes for free will be entirely optional, and taxpayers will still be able to stick with their current tax preparers.
The earliest possible delivery date for a direct file tool would be filing year 2024, according to the agency. Treasury Secretary Janet Yellen ordered the IRS to move forward with the pilot after reviewing the study.