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IRS Direct File under attack by Tax Software Companies and Republicans [1]

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Date: 2025-01-02

Everybody hates doing their taxes. You hate it even more when you either have to pay someone else, or you have to "rent" software to do it. That's why the IRS came up with Direct File.

Many have a simple set of information, and you can find out here if you qualify and if your state is covered.

Direct File does it, and does it for free. That's why It's being reviled by the tax preparation industry. They're going to lose a significant amount of revenue.

Senator Ron Wyden of Oregon, Democrat, is fighting the fight for us to keep Direct File operational.

Republicans are pushing to eliminate Direct File, a Biden administration program that allows for some Americans to file their taxes without paying for preparation services. To Wyden, the effort to eliminate the program is an attempt to "intentionally sabotage basic public services." "To me, paying your taxes should be free and easy, and the biggest benefit of Direct File is it's free," said Wyden, the Chairman of the Senate Finance Committee. "The tax software companies just want to pick your pocket every year and too many Republicans are taking their side."

On December 10th, a group of 29 Congressional Republicans sent a letter to Trump that urged him to "take immediate action, including, but not limited to, day one executive order to end the Internal Revenue Service's unauthorized and wasteful Direct File pilot program."

Their argument was that IRS was acting as a tax assessor, collector, preparer and enforcer. The Republicans called this a conflict of interest.

Direct File doesn't turn the IRS into a tax preparer, it just provides the online forms that allows you to prepare your taxes yourself. That's what the Republicans are really upset about, because the tax preparation software companies have spent millions of dollars in lobbying to make sure their business is kept intact.

"They don't have a winning case. It is hard to be against approaches that are simple and free and are an alternative to paying a few hundred bucks to file your taxes," said Wyden.

First the software companies made you buy the federal tax software and the state tax software. Then they moved to allowing you to download the federal software and use it for free, but you still had to pay for the state software. Now you don't own the software anymore, you essentially rent it.

Lowest price for TurboTax Deluxe 2024 Federal Plus e-file is $44.99 with free shipping. Home and Business for Personal and Self-employed is marked down to $85.99 from $129.99. But you don't get a physical copy, what you get is a digital download. Makes free shipping real easy for them. You can also pay for live online help. Doesn't say how much that service costs.

Companies selling H&R Block software are also digital downloads. Pricing is similar to Turbotax.

TurboTax also has a version that runs on your phone, which you can get from Google Play or Apple's App Store. You don't have to pay for it until you file. The price shown is $39, but it has a star next to it. I scrolled down and never found the reference on what the star means. Usually, it means that there's certain qualifications to get that $39 price, and if you don't have to pay until you file, you don't really know what it's going to be.

Pricing on e-file is less than for TurboTax or H&R block, but it also doesn't include state.

So I was wondering if somebody had some comments about what actually happens when you file, especially on these "free" versions.

A guy on Quora said: TurboTax often advertises a free version, but this normally applies only to simple tax situations, such as filing a 1040 form with no additional forms or complexities.... more complex scenarios, you may need to upgrade to the paid version, which can lead to charges like the $110 you encountered.

Then there's this consent to disclosure thing you can have to sign. They require that in order to e-file your taxes.

TurboTax says then says they can't use your information other than to file your taxes. Also says you don't have to sign the form. Then what the hell is it about?

In this day and age of online insecurity and hackers, would you really want to do your taxes online with a for-profit company? That's what some of them offer, besides downloading software to do the taxes.

You can also pay to have your tax refund monitored to see when you're going to get it, that's a new fee. They can also handle all your money until they decide to give it to you.

What I'm seeing is that you never pay what they show. It's always going to be something extra you're going to have to pay in order to get filing done or get your refund back.

Commercial tax preparation companies have made billions of dollars over the years by charging people to use their software. Wyden calls them "rent seeking." "We're the only Western industrialized nation as far as I can tell that has just sort of dissed this whole concept for years and years."

Open Secrets:

Leading tax prep companies have poured $90 million into lobbying on the Free File Program and other issues since the program's inception in 2003, a new OpenSecrets analysis found. After years of lobbying and negotiations, a coalition of tax prep companies called Free File Alliance reached an agreement with the IRS to offer free tax services to a larger portion of taxpayers starting in 2003. As part of the public private partnership, the IRS promised not to develop its own software or e-filing services. An addendum to the Alliances original memorandum of understanding with the IRS lifted that restriction in 2019. That 2019 addendum also blocked members of The Alliance from blocking searches for Free File Internet. The change was made after ProPublica reported the tax companies were luring tax filers away from the free tax filing options by hiding their Free File options from Google results, and instead directed users to paid products, including products that were marketed as "free" that allegedly tricked clients into paying.

H&R Block pulled out of the agreement in 2020, and Intuit in 2021, along with other companies.

The Inflation Reduction Act of 2022 allotted $15 million for the IRS to explore the creation of a free federal tax filing service.

In June, the Republicans put a budget rider that would prevent the IRS from creating the free filing service. It would have to be approved by the House and Senate appropriations committees.

Intuit has also received heat from the Federal Trade Commission, which filed a complaint in 2022, accusing Intuit of deceptively advertising their paid tax preparation services as free filing. On August 23rd, Intuit announced its total revenue was 12.7 billion dollars for the 12 months fiscal year ending June 31st, up 32% over the previous year.

Intuit and other companies have basically been caught doing bait and switch. Getting you to sign up and then charging much more than you thought you were going to have to pay originally.

So far Trump has not offered a public answer to the letter calling on him to end the program.

This is going to be a good example of the differences between the Biden administration and Trump's. It'll show how Democratic battles might work in the Trump era.

"This is a perfect example of a fight worth making. People understand that this is a basic service. They've been offered something that is free, easy and simple as opposed to spending significant amounts of time and digging into your wallet to pay for business as usual. So, we're going to go out there and say 'This is exactly what good government initiatives and policies ought to be like, so let's not be too surprised when Trump and the Republicans want to tear it down,'" Wyden said. We're going to be pushing back all the time, day in and day out. We'll bring it up in the nomination hearings. I'll bring it up on the floor. The Republicans want to ram a tax bill through the Congress... I'm going to make sure this is a big issue. This is not going to be an issue that moves quietly some night late in the evening," Wyden promised.

Let's simplify all the verbiage into the simple notion that the tax preparation companies and Republicans want to shut Direct File down because it works. They don't like it because it'll hurt the income of companies that don't deserve it and are accused of operating against the public interest.

You can check right here with the IRS if you qualify for using Direct File.

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