Government-operated electronic free-file tax system could impact big tax prep companies

According to the Associated Press, there could be a new, free option for tax filing in future years. The IRS has been tasked with looking into how to create a government-operated, electronic, free-file tax return system for all, but this could impact big tax-prep companies.

Congress has directed the IRS to report on how such a system might work; next month the IRS will release the first in a series of reports. Ariel Jurow-Kleiman, a tax law professor at Loyola Law School, and the New America think tank have been selected by the IRS to conduct the congressionally mandated study for the agency.

The possibility of an electronic free-file system operated by Washington is being celebrated by some taxpayer advocates who have said that would reflect good governance and serve taxpayers well. Critics voice skepticism about the IRS taking on the dual roles of both tax collector and tax preparer, arguing that the new service could create a power imbalance between taxpayers and the government.

Moreover, big tax preparation companies have millions of dollars to lose if the program comes to fruition and have spent heavily trying to influence policymakers on the issue. Data shows Intuit has spent $25.6 million since 2006 on lobbying, H&R Block about $9.6 million, and the conservative Americans for Tax Reform roughly $3 million.

Starting in 2006, an agreement between the IRS and the Free File Alliance prevented the IRS from creating its own free tax return filing system. In exchange, tax preparation companies agreed to provide free services to taxpayers making $73,000 or less. The provision that barred the IRS from exploring a free-file system expired in 2019, but the Free File Alliance agreement to provide free services for low-income taxpayers remains in effect.