IRS and Free File Alliance plan consumer protection changes for next tax season

The Internal Revenue Service has revised its agreement with the Free File Alliance to expand taxpayer options for free online software offerings for next filing season and avoid steering consumers to paid products.

The new agreement that was announced Friday updates a number of areas in an effort to make the Free File program more taxpayer friendly while strengthening consumer protections in several key areas. The program has long drawn complaints for promising free tax filing to taxpayers, but oftentimes directed them to paid software products and services instead, especially when they didn’t qualify for the free offerings.

“The Free File program is a great example of a public-private partnership, and it’s been a clear success since its creation 16 years ago,” said IRS Commissioner Chuck Rettig in a statement. “But more needs to be done to improve this important program, and these new changes will make Free File stronger and give taxpayers another reason to consider this valuable software option.”

The IRS and the Free File Alliance agreed to change some of the main facets of the program to improve consumer protections. The revisions extend the existing memorandum of understanding by one year to Oct. 31, 2021. The IRS said it’s announcing the agreement now to allow the software community enough time to make the changes for the beginning of next filing season.

IRS Commissioner Charles "Chuck" Rettig
IRS Commissioner Charles Rettig

Every year, approximately 12 Free File partners, acting through the Free File Alliance, provide software free of charge to eligible taxpayers. Any taxpayer who earns $66,000 or less could find one or more free commercial software products available by visiting IRS.gov. Some software makers offer both free federal and state tax prep. Active duty military personnel with incomes of $66,000 or less can use any Free File software product of their choice without regard to the criteria.

Since the Free File program started 16 years ago, taxpayers have filed more than 53 million free federal tax returns. The IRS estimates that translates into a savings of more than $1.6 billion to taxpayers, assuming a relatively conservative $30 per return preparation fee.

The program also provides Free File Fillable Forms, a fill-in-the-blanks version of the Form 1040 that’s most appropriate for taxpayers who already have some experience in preparing returns by hand and need only limited assistance. The Fillable Forms program, which can be used by anybody no matter what their income is, will be available again in the 2019 tax season for people who are filing their tax year 2018 returns.

Highlights of the Free File agreement include some features aimed at making the program more taxpayer friendly by fine-tuning the different guidelines Free File partners are required to follow when presenting related information to taxpayers on their websites and communications to their former and prospective users. Highlights include:

• Removing the “value-add” button from Free File partner landing pages. Free File members will need to get rid of any button or link on their Free File landing pages that would take taxpayers to non-Free File programs. The change should reduce confusion, emphasize and make clear to taxpayers what is included in the Free File program and allow taxpayers to avoid being steered into paid products when they expect the process to be gratis.

• Instead, taxpayers will be automatically returned to the IRS Free File page if they don’t qualify for an offer. To use Free File, taxpayers first use IRS.gov to connect to a company that offers Free File. But if the taxpayer doesn’t qualify for a free filing option on a particular member site, the new agreement requires the companies to send the taxpayer back directly to IRS.gov to see if they qualify for another Free File offer instead of directing them to a paid product from the same company.

• Returning taxpayers’ first option must be Free File. If a taxpayer returns to a Free File member’s website the next year after using the free program, the first option after they log into their account must be to use the Free File option — before they receive any other offers from the company.

• Follow-up emails to taxpayers who used Free File the previous year will welcome them back to the Free File service. This change will strengthen the rules for software companies sending follow-up emails to prior-year taxpayers and customers, reminding them of the availability of Free File. To help increase program participation, Free File members will email prior-year participants about the continuing availability of the Free File program before the start of tax season. The email can’t contain information about any non-Free File service or product, nor any marketing or soliciting, except for free or paid state tax preparation offers.

• Emphasis on the in-place review process. Both the IRS and a third party already review each Free File option before filing season to make sure the program standards are being followed by Free File members. The updated agreement will now reinforce this longstanding requirement, which has always included an unannounced review during filing season.

“These steps will help further protect taxpayers and make a good program even better,” Rettig stated. “The IRS is committed to improving the Free File program and continuing to make this a great option for taxpayers to consider when they are preparing their taxes.”

The Free File Alliance said the new agreement means that the 12 companies that currently participate in the program will provide new options that make the program easier to use and more consumer friendly. “Over the 16-year life of this joint public-private partnership program, we have worked with the IRS to continually improve Free File,” said Free File Alliance executive director Tim Hugo in a statement. “The Service and our group have come up with a series of improvements to better serve taxpayers. Today, we are pleased to announce the latest round of improvements that will benefit the taxpayers who use this program. We are also grateful to Commissioner Rettig for his leadership on this issue at the beginning of his term of service.”

H&R Block also weighed in, praising the move. “H&R Block applauds today's announcement by the IRS and Free File Inc. to improve and strengthen the Free File Alliance on behalf of the American taxpayer,” said the tax prep chain in a statement forwarded by spokesperson Erin Donar. “Through this partnership, we have helped millions of low-income Americans file their taxes for free with confidence. To ensure the longevity of this important program, we have called for commonsense updates and improvements. We are proud that by working with both the public and private sector, we have and will continue to serve Free File customers to ensure they get the most out of their annual return.”

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