Ending Direct File Program is a Gift to the Tax-Prep Industry That Will Cost Taxpayers Time and Money

The Trump administration reportedly plans to shutter the IRS Direct File program before it has a chance to get fully off the ground, taking away a free option for people to file their tax returns directly to the agency. Ending Direct File is another gift from this administration to large corporations, this time to the multibillion-dollar tax prep industry that profits from you filing your taxes.

Direct File had tremendous potential to make tax filing less expensive, faster, and easier for millions of Americans. By breaking down barriers to filing, it was also poised to help more low- and moderate-income families get tax credits they’re eligible for, like the Earned Income Tax Credit and Child Tax Credit.

The IRS and state governments were in the process of expanding Direct File after a pilot year when it was available to taxpayers in 12 states. Hundreds of thousands of Americans used the IRS Direct File tool to file their taxes during the pilot, and the program received overwhelmingly high marks and near-unanimous satisfaction from users.

Research from Code for America and the Economic Security Project previously found that, at maturity, Direct File could save the average user $160 in filing fees and hours of their time each year, which provides Americans a total of $11 billion annually between filing fees and time costs. It could also deliver up to $12 billion a year in additional federal tax credits to eligible families.

This program was desperately needed. For decades, the tax prep industry has lobbied to keep tax filing more complicated, forcing millions of families to pay for services that should be offered for free. The result is that Americans paid private companies billions of dollars annually and spent an average of 13 hours filing a single personal income tax return before the launch of Direct File.

Tax prep companies like Intuit (maker of TurboTax) and H&R Block entered into a so-called “Free File Alliance” with the IRS in 2002 and agreed to provide free filing to eligible taxpayers as long as the agency did not do so itself. The tax prep companies then did their best to hide these services on their websites and even hid the services from Google search results.

Intuit was eventually sued for this practice and settled for $141 million. Last year, the Federal Trade Commission issued a new ruling to prevent the company from using deceptive marketing to advertise their services as “free” and then push taxpayers into expensive “premium” options.

After leaving the Free File Alliance – curiously suggesting that Americans no longer even need an option to file their taxes for free – Intuit has taken a few desperate stabs at killing the IRS direct file option. ITEP has previously debunked the ridiculous argument from Intuit lobbyists that IRS direct file would be harmful to Black Americans, and despite the company’s claims that the program is too costly to implement, their own financial disclosures show that they receive research tax breaks potentially larger than the entire cost of direct file.

Filing your taxes should, for most people, be easy, fast, and free. That was the premise – and the promise – behind the IRS Direct File program. Destroying this much-needed public service will hurt taxpayers and enrich the profitable corporations that charge Americans for tax filing. In all, it’s yet another part of the ongoing attack on the IRS at the benefit of the wealthiest Americans and corporations.

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