IRS Pilots Direct File Program While Tax Prep Industry Flails In Response

We have long detailed through a series of posts, most of them based on fantastic reporting from Pro Publica, Intuit's shady bullshit when it comes to its supposed Free to File" program offered through a longstanding deal with the IRS. The summary is: massive tax prep companies cut a deal with the IRS so that the agency wouldn't offer its own free filing program in exchange for those prep companies offering it themselves and potentially upselling customers into paid programs. In practice, those same companies, especially Intuit and its TurboTax platform, did everything possible to hide the free options from customers, including the poor and veterans. Because of all that, the IRS stated in 2020 that it was going to alter that deal and begin offering its own free file program. Here's what Intuit had to say about that at the time.

In a blog post on the Intuit website, the company said, Intuit strongly supports these changes to the Free File program and associated Free File offerings because they increase the focus on the taxpayer experience."

Keep that statement in mind as we go through this post.

This year is the year, apparently, as the IRS has announced it is ready to pilot that program in a handful of states.

The IRS is starting small, limiting Direct File to taxpayers in Arizona, California, Massachusetts, and New York (its statement says their tax departments decided to work with the IRS to integrate their state taxes into the Direct File pilot"). Although people in zero-income-tax Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming may also be able to try it out.

The Washington Postreportedthat the IRS will send invitations to selected, eligible taxpayers around mid-February," citing an IRS briefing. Later on, more and more eligible taxpayers will be able to access the service to file their 2023 tax returns," it says.

This 1.0 version of Direct File-which the IRS describes as "a mobile-friendly, interview-based service" that will be available in English and Spanish-will also only cover simpler tax situations.

It's about time. The percentage of taxpayers that will be able to file for free using this program, which I will point out is not going to be hidden by the IRS from the public, is huge. If it is even mildly successful, it will represent a massive departure of potential customers for the major tax prep firms. The focus, to borrow Intuit's own phrase, will be on the taxpayer experience, as opposed to trying to figure out how to extract as much money as possible from them.

Which is what makes it so strange to see Intuit's latest statement on this new program.

The Direct File scheme is wholly redundant and will exclude the vast majority of taxpayers, all of whom can already file their taxes absolutely free of charge today - free for the taxpayer and free for the government. To the tens of millions of restaurant workers, gig economy workers, most retirees, parents who pay childcare expenses, students and more, if you file with Direct File you should be prepared to be audited since you are ineligible and your tax filing will likely be wrong. The Direct File scheme is a solution in search of a problem, and that half-baked solution now has the potential to become a financial nightmare for tens of millions of Americans while unnecessarily costing billions of dollars for something free of charge today."

You will notice that this statement is quite different from Intuit's previous statement when the plan for this was announced. Gone is the support for the program. Gone is any real focus on the taxpayer experience. Instead, this statement makes several claims, which each deserve attention:

1. Direct File is redundant: no, it actually isn't. It's what should have been done in the first place, but instead of a free to file program that was widely accessible to the people who could benefit from it, Intuit and companies like it hid its offer and used its existance to try and make money from vulnerable people. If it were redundant, nobody would use it.
2. Certain category workers can't use the Direct File program: that is correct and the program lays it out that way. Nobody is going to get audited for this because the system won't accept returns in those categories.
3. The Direct File scheme is a solution in search of a problem: uh, no, Intuit, we know what the problem is, and it's you.
4. Direct File will result in unncessary payments from taxpayers: that is pure speculation and unlikley to be true. But if it was, well, then I would agree it's redundant with Intuit's free filing scheme, since it achieves the exact same end.

Ultimately, you know Intuit is lying about this for two reasons. One, Intuit is saying it, so it's immediately suspect. Two, if this program were so bad and so certain to fail, why have Intuit and companies like it spent so much money lobbying against it?