The IRS is making strides towards a more convenient and direct tax filing experience for taxpayers. In a recent report submitted to Congress, the agency outlined its plans to launch a test run of free, government-operated tax preparation software in the upcoming 2024 filing season.
This initiative has the potential to eliminate the need for reliance on industry giants like Intuit, streamlining the complex process of filling out intricate forms and performing calculations; the envisioned system may even introduce pre-filled tax forms, where taxpayers simply need to verify the information already known to the government, instead of laboriously entering it themselves.
With the IRS’s ability to detect errors in tax filings, it’s logical to explore a system that provides taxpayers with upfront information on their owed amounts or anticipated refunds.
Under the directive of the Treasury Department, as part of the Inflation Reduction Act passed last year, the IRS will initiate a pilot program involving a select group of taxpayers to gain insights into effectively managing such a system.
The comprehensive report, available in PDF format, examines the challenges and costs associated with developing direct filing options. It also includes survey results that reflect taxpayer opinions on the program. The IRS concluded that many taxpayers are keen on utilizing a free tool provided by the agency for tax preparation. It affirms the IRS’s capability to develop such a tool, as long as it receives consistent support in the government’s budget.
IRS Commissioner Danny Werfel, who submitted the report to Congress, emphasized that government-run direct filing programs are already prevalent in numerous other countries. He stated:
“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. Direct File – which is already used in various tax jurisdictions worldwide – has long been discussed as an option to enhance the customer experience for U.S. taxpayers.”
This development is the latest one in an ongoing narrative that traces back to a revealing report by ProPublica in 2019, which exposed how e-filing companies (including Intuit, the creator of TurboTax), actively hindered public access to free and user-friendly filing alternatives.
These companies went back on their agreement with the IRS, wherein they promised to offer free direct filing options for low- and middle-income taxpayers in exchange for the IRS refraining from creating its own program — although these companies did create such options, they intentionally concealed them from the public, even manipulating search engine results.
In response, the IRS updated the Free File agreement to explicitly prohibit commercial tax preparation entities from hiding the availability of free filing options. The IRS also revoked its commitment to rely on companies like Intuit and H&R Block for the development of simplified filing software, which gave the IRS the autonomy to establish its own program.
In 2021, Intuit announced its departure from the Free File program, citing the program’s restrictions as too burdensome to comply with. Subsequently, in 2022, the company faced a $141 million fine for deceptively misleading customers into paying for the TurboTax “Free Edition.”
The progress towards a government-operated, free tax filing system signifies a significant milestone in ongoing endeavors to enhance the taxpayer experience and simplify the filing process.
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