Although millions of Americans already have access to — and use — free tax filing programs, the IRS is piloting its own platform, Direct File. The new program is only open to a small percentage of Americans and will leave people confused about their eligibility while creating a clear conflict of interest for the IRS.
IRS Direct File is costly, unnecessary and duplicative.
Costly: Direct File would require hundreds of millions of dollars of taxpayer funds annually.
- The IRS estimates Direct File will cost $64 to $249 million annually[1].
- The Treasury Inspector General for Tax Administration notes, “Direct File cost estimates [by IRS] could not be substantiated… The IRS’s estimate included costs associated with providing customer support, product development, i.e., labor costs, and technology, i.e., hosting fees, software licensing fees, etc. Yet when we asked the IRS for documentation supporting how it arrived at these various cost estimates, it could not provide us with any.”[2]
- Tony Scott, former CIO for President Obama, said: “The estimated costs of this project are very likely grossly understated, based on a sampling of other government software development projects.”[3]
READ MORE: The IRS’s new Direct File pilot is costly, confusing and unnecessary.
Duplicative and Unnecessary: Tens of millions of taxpayers are already eligible to use free tax preparation through long-standing agreements with commercial tax providers.
- In 2023, the tax provider industry completed 6 million free federal returns, in addition to millions of free state returns.
- That’s nearly $900 million in free service annually.
- Just 12% of taxpayers would choose IRS Direct File option if no state return was included, as is the case for most Americans under Direct File, according to a study conducted by MITRE.[4]
- According to Tony Scott, “a clear, demonstrable need for IRS Direct File appears to be missing… Neither the IRS nor members of Congress who champion this IRS-sponsored approach have been able to characterize the benefits of their strategy in terms of time saved, costs avoided, increased customer satisfaction or any other commonly used metric of success/benefit.” [5]
Direct File will confuse and frustrate taxpayers.
Confusing: Taxpayers must get through seven screens before they even learn if they’re eligible for Direct File. [6] rustrating: The IRS is not equipped to provide the same level of customer service as private companies.
- Each year, private tax software companies invest hundreds of millions of dollars to simplify the taxpayer experience and to build upgrades, such AI tools, that make filing easier and faster.
- Private companies also staff massive call centers with experts who quickly answer questions and provide support. In contrast, a 2022 GAO assessment found “most phone calls [to the IRS] from taxpayers were unanswered.” [9]
- In 2022, the GAO found that the IRS’s workload led to a backlog of about 8 million returns from the prior year.
The IRS has a clear conflict-of-interest when it comes to determining how much taxpayers owe.
- Private tax software providers prioritize accuracy and minimizing tax liabilities for taxpayers, even offering “maximum refund guarantees.” The IRS has no incentive to provide a similar service.
- The IRS prioritizes tax collection. With Direct File, the IRS serves as tax preparer, tax auditor and tax enforcer, leaving taxpayers in a vulnerable position.
[1] https://www.washingtonpost.com/business/2024/02/04/direct-file-irs-taxes/
[2] https://www.tigta.gov/sites/default/files/reports/2023-10/2024408002fr.pdf
[3] https://thehill.com/opinion/4253283-the-governments-free-tax-filing-software-is-virtually-guaranteed-to-fail/
[4] https://www.mitre.org/sites/default/files/2023-05/PR-23-1221-MITRE-Taxpayer-Filing-Preference-Surveys.pdf
[5] https://thehill.com/opinion/4253283-the-governments-free-tax-filing-software-is-virtually-guaranteed-to-fail/
[6] https://www.wsj.com/personal-finance/taxes/can-the-irss-new-free-tax-filing-tool-replace-turbotax-we-tried-it-out-77a6b243
[7] https://www.washingtonpost.com/business/2024/02/04/direct-file-irs-taxes/
[8] https://www.azcentral.com/story/money/business/consumers/2024/01/26/irs-rolls-out-new-easier-filing-option-to-arizona-taxpayers/72357766007/
[9] https://www.gao.gov/products/gao-23-105880
