IRS Exploring Creating Government-Backed System to File Taxes For Free

WASHINGTON (TND) — The Internal Revenue Service will use some of the $80 billion in funding from the Inflation Reduction Act to study whether it should create a government-operated system for Americans to file their taxes for free.

Getting the IRS to create a free-file system has long been a priority for Democrats, who are frustrated Americans are forced to spend money to file taxes in a system that has been dominated by the corporate tax service industry.

After the sweeping Democratic spending bill was signed by President Joe Biden, a provision will have the IRS spend $15 million to study a free system.

Some experts say a government-backed system would help more Americans gain access to services to help them file a tax return while also making things easier for the IRS to process by encouraging taxpayers to file digitally, which is significantly easier for to handle than paper returns.

The IRS received a huge boost in the Inflation Reduction Act in an $80 billion infusion of cash over 10 years which will help the struggling agency rebuild its staff and update its antiquated systems that experts and government officials have said helped create a giant backlog and decreased service for people looking for help. It will also help close the “tax gap” of what is owed but not paid due to a lack of enforcement that the most conservative estimates say is worth hundreds of billions.

While the results and implementation of a government-backed system are still years away under the best of circumstances, it could upend the way most Americans file their taxes.

Private tax preparation services conduct most taxpayers’ returns, though many of them have been criticized for misleading advertising where the service is listed as free but costs money when returns require anything beyond basic services. The industry, which spends billions annually to lobby the federal government, could put up a fight against the creation of a government system.

Another potential roadblock is the Free File Alliance, an agreement between the IRS and some private companies that prevented the IRS from creating its own system if companies provided free services to people making $73,000 or less.

Some of the largest companies have pulled out of the agreement in recent years, including H&R Block and Intuit. Critics point to the low participation rate as a reason to move forward with a new system.