Watchdog: 14M taxpayers eligible for ‘free file’ program may have paid to e-file their taxes

More than 14 million taxpayers who met the criteria for the IRS “free file” program may have paid a fee to electronically file their federal tax returns last year, according to an estimate from the Treasury Inspector General for Tax Administration (TIGTA).

“The complexity, confusion, and lack of taxpayer awareness about the operation and requirements of the Free File Program are contributing reasons why many eligible taxpayers do not participate in the Program,” TIGTA wrote in a report released this week.

The free-file program is a partnership between the IRS and tax-preparation firms under which the companies offer free tax-filing software to low- and middle-income taxpayers. Lawmakers raised concerns about the program last year following articles from ProPublica reporting that tax-prep companies had taken steps to hide their options under the free-file program from web search results.

TIGTA said that during the 2019 tax processing year, only 2.5 million of the 104 eligible taxpayers filed their taxes through the free-file program, while more than 34.5 million eligible taxpayers used tax-prep companies’ commercial software to file their returns.

After calling up a statistically valid sample of those who filed using commercial software, TIGTA estimated that 14.1 million taxpayers who were eligible for free file and used a commercial website may have paid a fee to e-file their tax returns, while 20.4 million taxpayers who filed their taxes via tax-prep companies’ commercial software may not have paid a fee.

TIGTA said that the IRS “has not taken sufficient actions to increase awareness” of the free-file program. 

In its response to TIGTA included in the report, the IRS noted that it had signed an updated agreement with the tax-prep companies in December, under which the companies are barred from excluding their landing pages under the free-file program from web search results. The IRS said that it will continue to promote free file during the filing season and “develop a comprehensive communication plan” to find additional ways to conduct outreach about the program.

“The IRS remains committed to improving the Free File program so that taxpayers who use it will have another great option to consider when preparing their taxes,” the agency said in a statement provided to The Hill. “As reflected in the IRS response to TIGTA, we are identifying short-term and long-term actions that will continue to further improve the Free File experience for taxpayers.”

Sen. Ron Wyden (Ore.), the top Democrat on the Senate Finance Committee, said in a statement Wednesday that the TIGTA report “confirms recent reporting — the Free File program is a mess.” He said that the IRS “must be vigilant” in enforcing the reforms to the program made in the December agreement with the tax-prep companies.

A spokesman for Intuit, maker of TurboTax, said in a statement that the TIGTA report reaffirms “that the majority of eligible tax filers using DIY software filed for absolutely free through the Free File Program or using commercial products.”

“We are reviewing the report and support efforts by the IRS and [Free File Alliance] to further strengthen the Free File program,” the spokesman said.

Tim Hugo, executive director of the Free File Inc. (FFI) coalition of tax-prep companies, said in a statement that the group “welcomes TIGTA’s new report on the Program and notes that the recently executed agreement between the Internal Revenue Service and FFI has addressed the IRS’s desired improvements to the Program.”

– updated on Feb. 6 at 8:07 a.m.