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US Congress is Making It Illegal for the IRS to Offer Free Tax Filing Service

Last Updated September 23, 2020 12:38 PM
P. H. Madore
Last Updated September 23, 2020 12:38 PM

The US Congress will soon officially ban the IRS from offering its own tax filing service, according to reporting by ProPublica , a non-profit news agency. Probably.

Advocates of a free, government-sponsored tax filing service have long argued  that the current system doesn’t do justice to the millions of taxpayers making under $66,000 per year who actually shouldn’t be paying anything to file their taxes.

Tax Prep Industry Victory Seems Inevitable

According to a representative of the Free File Alliance , speaking to ProPublica, disallowing the IRS to create a free tax filing service will be great for everyone.

Only about 3% of qualified taxpayers file for free. Private tax accounting software firms use free filing as a way to divert people to paid products. The IRS lists a number of places which should enable many taxpayers to file for free, and the list changes every day (for fairness). However, nearly all of these obfuscate the process. This reporter filed for an extension just this morning, believing he could do so for free through one of the services. However, when it came time to hit submit, there was a cost involved. The most likely case, for most taxpayers already exhausted by the process, is to just pay the $20-100.

The US Congress is set to pass a bill that will make paying taxes harder.  Source: Shutterstock

But some tax experts have long envisioned  a system where taxpayers simply log on to a government website and process their documents. In the end, taxpayers who use privatized tax systems without the help of a CPA are only paying for access to an open network called e-File. The IRS’s e-file website currently functions as a sales funnel to several companies with the legal right to use e-file. An argument against this might be that every US citizen should be qualified to use e-file, and the IRS should offer a system that makes this possible.

Millions Spent Lobbying to Codify Expensive, Nightmarish Status Quo

After years of lobbying, the tax accounting firms of America have finally eliminated the possibility with the “Taxpayer First Act.” H&R Block and Intuit, two of the largest do-it-yourself (and limited assistance) tax filing services, contributed over $6 million to congressional campaigns last year. Collectively their goal is to prevent the IRS from ever offering a competing service – a situation which might do justice to those who gain nothing by using their paid services.

The IRS currently has a memorandum of understanding with the Free File Alliance that states it will not create its own filing system as long as its members offer free services to Americans making under $66,000. Again, the majority of people  making under $66,000 end up paying some fee or another  to file their return.

A spokesman for the Free File Alliance (which is composed of companies who benefit from the status quo), the law is “a great idea when you can provide a great product — free tax returns — to Americans at no cost to the federal government.” Most people don’t benefit from the “free” services offered by these private companies, but they might if the government was administering the program directly.

The Taxpayer First Act is currently viewed as more likely to succeed than past efforts. It includes other provisions that will be more palatable to people on both sides of the aisle. For example, the Act will prevent the IRS from using private debt collection agencies on people who owe under a certain amount.