Taxpayers Will Still Have a Choice
The IRS Commissioner Danny Werfel emphasized that taxpayers won’t be limited to the new direct file option.
“They can use tax software. They can use a trusted tax professional. They can use a paper tax return. We’d rather they file electronically, sure. But they have that choice,” Werfel said on a conference call with reporters.
Tax Preparation Companies Aren’t Happy
The government’s announcement is a nightmare for tax preparation companies like Intuit and H&R Block, as a direct file system would eat into their profits.
“A direct-to-IRS e-file system is wholly redundant and is nothing more than a solution in search of a problem,” Rick Heineman, a spokesman for Intuit, said in a statement. “That solution will unnecessarily cost taxpayers billions of dollars and especially harm the most vulnerable Americans.”
But the IRS report contradicts Heineman’s statement. The agency estimates that the direct file program would range in cost between $64 million and $249 million, depending on the scope of the program and how many taxpayers use the service. The IRS could also recover a significant portion of its budget if paper filers switched to the new system, as paper returns account for 70% of the agency’s processing costs.
Heineman also fails to note that Intuit has campaigned to make filing for free more difficult. Cumulatively, the company has spent $25.6 million on lobbying since 2006, and last year, it paid $141 million to settle a complaint that it lured customers in with its free tax preparation services, only to steer them to expensive upgrades.
The Bottom Line
As it stands, private companies charge taxpayers for a service that’s free in many countries, profiting off their unfamiliarity with a complex system. For that reason, the IRS pilot program is a step in the right direction. That said, it’s worth remembering that details are still few and far between.
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