Republicans denounce study on IRS setting up its own free e-filing system

A pair of Republican leaders of Congress' main tax-writing committee are criticizing the fairness of an upcoming Internal Revenue Service study on the possibility of setting up its own free tax-filing system that would compete with the commercial tax software industry.

A provision in the Inflation Reduction Act that Democrats passed last year appropriates $15 million for the IRS to give to an independent third-party group to study the feasibility of setting up a direct e-file tax return system, including the approach, schedule, cost, organizational design and the IRS's capacity to deliver such a system. They claim the group selected to carry out the study, New America, has already recommended such a system in the past and believe it would be biased in favor of a free tax prep system.

House Ways and Means Committee Chairman Jason Smith, R-Missouri, and Ways and Means Oversight Subcommittee Chairman David Schweikert, R-Arizona, sent a letter Monday to IRS Acting Commissioner Douglas O'Donnell, demanding more information on the decision behind giving the task to New America. The IRS and New America did not immediately respond to requests for comment.

Stefani Reynolds/Bloomberg

"Taxpayers have numerous options for preparing and filing their federal income taxes, including many free options," they wrote. "Taxpayers may prepare and file their own tax returns, use one of many tax preparation software companies, rely on a tax return preparer, or rely on a public-private partnership between the IRS and the tax preparer industry called the IRS 'Free File Program.' The Free File Program provides two ways through which taxpayers can prepare and file their federal income taxes online for free if their adjusted gross income is $73,000 or less."

They disputed the characterization of New America as strictly nonpartisan and nonprofit and labeled it a "left-leaning think tank." They claimed some of the nonprofit's top officials include former members of the Obama administration and a former aide to Secretary of State Hillary Clinton. They noted that some New America employees wrote favorably in March 2021 about the Tax Filing Simplification Act introduced by Sen. Elizabeth Warren, D-Massachusetts, which would set up a free filing system at the IRS, saying, "the government … can and should build this tool in the coming years." 

The lawmakers also criticized the appointment of a prominent tax attorney and professor, Ariel Jurow Kleiman of Loyola Marymount University's law school, to work with New America on the study, contending that she too has expressed support in the past for such a system.

"I didn't join this effort with the intention of advancing any specific position," she told Accounting Today. "My only goal is to do my best to assess the feasibility and capacity of the IRS to offer a direct e-file tax system, as mandated by the Inflation Reduction Act."

The study is expected to be released in May, according to The Hill. Advocates have long called for the IRS to set up its own free tax-filing system for taxpayers. The IRS has been instead been working with a group of tax software providers, such as TaxAct and TaxSlayer, which are part of the Free File program, but there are limitations on who can file based on maximum income, state tax support, age and other factors. The two leading consumer tax software providers, Intuit and H&R Block, no longer participate in the program, but offer some of their own limited free options. The IRS also offers its own Free File Fillable Forms capability as part of the program, but it has limited functionality.