IRS balks at government watchdog’s free public file suggestion

The IRS does not believe a free public filing option would “significantly improve the taxpayer experience,” the tax agency said in a new Government Accountability Office report.

The stance goes against a recommendation from the government watchdog, which suggested the agency identify and create more free options for filing tax returns online.

The GAO report focuses on the tax agency’s Free File program, which has been around for 20 years and is operated by the IRS and a consortium of tax preparation companies to give most Americans the ability to file their returns income electronically at no cost.

Currently, about 70% of Americans are eligible for the program, which caters to those who fall below a certain income threshold, but most people who qualify for the program use other ways to file their taxes than they might have. -be had to pay, says the GAO.

The IRS itself does not currently have an online filing service as the GAO suggests it plans to expand, but whether the agency could or should offer its own option has been a question. since the start of the program.

“Historically, the IRS had agreed that it would not develop its own online filing services in exchange for participating companies providing free services to eligible taxpayers,” the report said.

When the agency signed the first agreement with the services in 2002, the IRS agreed that it would not offer its own free online tax preparation and filing services. The GAO report says companies participate in the program, “to help ensure that the federal government does not create its own tax reporting system, which could compete with them.”

The agreement that the IRS would not do its own service was removed from the agreement between the IRS and the consortium in 2019, according to the GAO report.

Whether taxpayers would have better experiences if the IRS established its own system is something stakeholders differ on, according to the report.

One concern for an IRS-run service cited by stakeholders referenced in the report, and by the IRS itself, is IRS funding, capacity, and outdated technology.

But others say the IRS is in the best position to use the data it has on taxpayers to potentially pre-fill tax returns and help low-income Americans file taxes and get benefits. who as a result.

The GAO itself writes that “because taxpayers are generally required by law to file a return, and because many federal benefits are available only to those who file, it is reasonable to expect the government helps citizens meet their reporting obligations at the lowest possible cost.”

The watchdog recommended in the new report that the IRS eliminate a remaining provision in its memorandum of understanding with the consortium that requires the agency to notify the group if it commits money to provide free services.

Next, the watchdog recommends that before the current agreement with this consortium ends in October of next year, the IRS Commissioner “work with relevant stakeholders to identify and develop additional options for the free online filing of income tax returns.

The IRS said in response that it “does not believe a free public filing option would significantly improve the taxpayer experience, nor do we have sufficient funding to develop this solution,” it said. writes IRS Deputy Commissioner for Services and Enforcement Douglas O’Donnell.

“If new legislation and funding were approved, the IRS would expect to assess the feasibility and utility of offering additional free tax preparation and filing options,” he continued.

The watchdog report also questions the Free File program as a whole, saying that “the IRS does not manage the risk of relying on the Free File program because it helps taxpayers file for free online.”

The GAO stresses that companies can leave the consortium freely, and the consortium can also terminate the program if the IRS were to develop its own system.

Intuit, which runs TurboTax, recently pulled out of the program earlier this year. So did five other companies that left between 2016 and 2021, which also included H&R Block. Along with Intuit, it had served about 70% of people in the Free File program in 2019, the report said.

“The departure of the two largest companies from the program raises questions about its continued viability. While the IRS has expressed concern about the resources needed to develop an alternative, this concern must be weighed against the potential for an abrupt end to the program and the customer service challenges it would present,” the GAO report states.