Trump Increases Cost of Tax Return Filing – ITEP

IRS Ends Direct File Program Amid Industry Lobbying

The Internal Revenue Service (IRS) announced this week the termination of the Direct File program. This decision will force many Americans to return to paid tax services to file their income tax returns. The conclusion of the program was anticipated due to the intense lobbying efforts by tax preparation companies such as Intuit and H&R Block.

Overview of the Direct File Program

Introduced as an experimental initiative under the Inflation Reduction Act in 2022, the Direct File program enabled taxpayers with simple returns to submit their documents directly to the IRS, negating the need for third-party services. The program likened tax filing to other government-related transactions, such as paying a parking fine or a national park entry fee, which do not necessitate the involvement of a private company.

Lobbying Efforts and Opposition

The discontinuation of the Direct File program is a victory for tax prep companies that had a multibillion-dollar interest in its termination. The industry’s opposition included claims that Direct File was too costly to implement and would ultimately be detrimental to taxpayers. These assertions were made despite one company alone receiving more in research and development tax breaks than the total cost of the Direct File program.

As part of their opposition, tax prep companies made various attempts to discredit the Direct File program, including ludicrous assertions that it would harm the Black American community and that their services such as TurboTax were advocating for women.

Popularity and Success of the Direct File Program

The Direct File program, initially launched in 12 states, became popular and successful among taxpayers, with over 90% of users rating their experience as above average or excellent. After the first year, more states joined the program due to its success. Studies indicated that the program would save Americans billions annually in time and tax preparation fees, and would increase the number of families receiving tax credits.

The Impact of Legislation and Lobbying

Despite its popularity and success, the Direct File program was targeted for budget cuts and was suspended soon after the commencement of the Trump administration. A GOP tax and spending law passed later required the IRS to gauge public interest in the program. However, critics argue that the real aim was to provide cover for politicians yielding to the demands of corporate lobbyists.

In its efforts to undermine public support for the Direct File program, the IRS conducted a public survey that critics believe was designed to portray the program as excessively costly. The IRS did not raise the same cost-related questions for private tax preparation options.

The Role of the Tax Preparation Industry

The influence of the tax preparation industry over American interaction with the government is nothing new. For decades, large corporations have lobbied to maintain their role as intermediaries between taxpayers and the IRS. In the past, these companies have also been accused of hiding their free services from eligible taxpayers and directing them towards paid options. This led to a lawsuit against Intuit, which was settled for $141 million.

Looking Ahead

The termination of the Direct File program is a loss for American taxpayers who will no longer have the option to file their taxes directly with the government. However, the program’s brief success could serve as a precedent for future government initiatives, highlighting the public’s desire for a direct, transparent interaction with the IRS.