Dems call for investigations of tax-prep companies

Sen. Elizabeth Warren (Mass.) and other congressional Democrats are pressing the IRS and the Federal Trade Commission (FTC) to take action following reports that tax-preparation companies have been hiding their options under the IRS’s Free File program from customers.

Lawmakers said in a letter to the IRS this week that the agency should “dismiss the companies that have deliberately tried to cheat taxpayers from the program.” 

{mosads}Additionally, lawmakers said in separate letter to the FTC that they want that agency to investigate the tax-prep companies, saying that “these companies’ actions in hiding Free File from search engine results — and therefore from consumers — in order to artificially inflate profits and deprive low-income consumers of a cheaper product merit investigation as unfair and deceptive practices.”

In addition to Warren, the letter’s signers include Rep. Tim Ryan (D-Ohio) and Sens. Cory Booker (D-N.J.) and Bernie Sanders (I-Vt.), who are all running for president. 

Many tax prep companies participate in the Free File partnership with the IRS, in which the companies offer free tax filing software to low- and middle-income taxpayers and the IRS agrees not to offer its own tax-filing service. However, only a small percentage of eligible taxpayers participate in the program each year.

The investigative news outlet ProPublica has reported in a recent series of articles that the tax-prep companies, such as TurboTax and H&R Block, have taken steps to try to hide their free filing options, including by hiding the options on web search results. Democrats said in their letters to the IRS and FTC that their staffs have also identified other tax-prep companies that appear to be using code to hide their free filing options from online search results: TaxSlayer, FreeTaxUSA and 1040.com.

“Hiding Free File from the public clearly aligns with the financial interests of these companies, because taxpayers are more likely to encounter and use their fee-based services, which are easily found through search engines,” lawmakers wrote in the letters. “For the same reason, it has likely added countless costs in additional fees for low-income preparers who should have had access to Free File but were understandably unaware of the specific IRS website that may have led them there.”

Democrats asked the IRS to “take any available action” to remove tax-prep companies that have hid their free filing options from the IRS’s Free File Alliance and ensure that the companies refund fees to customers who were eligible for free filing but instead paid to use the services because they couldn’t find the free options. The lawmakers also asked the IRS what it plans to do to improve its oversight of the free file program.

Democrats asked the FTC to investigate whether the tax-prep companies engaged in “unfair and deceptive practices or unfair methods of competition,” and whether the companies entered into an illegal agreement to suppress competition.

Senate Finance Committee ranking member Ron Wyden (D-Ore.) also signed the letter to the FTC.

The letters are the latest call for an investigation into the tax-prep companies following ProPublica’s reports. New York Gov. Andrew Cuomo (D) earlier this week asked agencies in his state to investigate the companies. And Rep. Katie Porter (D-Calif.) urged the IRS in a separate letter this week to consider requiring refunds for those eligible for free file but instead paid for services.

Intuit, which makes TurboTax, has said characterizations of its marketing and search practices related to free file are “untrue,” and H&R Block has said that it believes that it “is in full compliance with the Free File agreement.”

The House last month easily passed a bipartisan IRS reform bill that would codify the Free File program, but the increasingly vocal concerns about program have called into question whether the bill will pass the Senate. 

Warren and several other Democratic lawmakers last month introduced legislation in the House and Senate to direct the IRS to create its own online tax-filing service and to bar the IRS from entering into any arrangements that would prevent it from doing so.