IRS to Compete with Tax Preparation Service Companies
TL/DR –
The Internal Revenue Service (IRS) will launch a free tax-filing service called Direct File in 13 states in 2024 for eligible taxpayers with simple returns. The service, which will be available in English and Spanish, has been criticized as unnecessary and costly to taxpayers, with some arguing that existing free services from private companies already cater to individuals with simple tax returns. The IRS, however, believes Direct File will improve taxpayer service and will offer users help from IRS employees for customer service, technical support, and clarification of tax law.
Massachusetts taxpayers eligible to file simple tax returns will benefit from a free service, Direct File, offered by the Internal Revenue Service (IRS) starting in 2024. The program hopes to streamline the tax-filing process, but concerns regarding costs and impact on existing free services have been raised.
Direct File: An Overview
The IRS was granted $78 billion from the Inflation Reduction Act of 2022 to enhance taxpayer service, upgrade systems, and increase compliance actions against wealthy taxpayers and corporations. The agency’s resulting service, Direct File, aims to simplify tax filing for eligible taxpayers.
Direct File will initially be available in 13 states and is designed for taxpayers with relatively simple returns. The service will be accessible through various devices and languages (English and Spanish), and users will receive support from IRS customer service representatives.
Concerns About Direct File
Direct File’s critics argue that the free service will cost billions and that existing shortcomings within the IRS should be addressed first. Tania Mercado from Intuit, a global financial technology company, referred to Direct File as an unnecessary expense, since free tax preparation services like TurboTax already exist.
In addition, other companies like FreeTaxUSA, Cash App, Tax Act, and Tax Slayer also offer free tax preparation services.
Direct File’s Implications
While Direct File could potentially cut IRS costs, its ability to advocate for individual’s highest refunds has been questioned. Critiques point to an IRS admission of systemic inequities affecting low-income filers and Black taxpayers, who are audited at disproportionately higher rates. This information was backed by studies from Syracuse University and Stanford University.
Despite these criticisms, the program will move forward, even as the IRS faces complaints about customer service, staffing issues, backlogs, and privacy concerns. The IRS’s task in managing the complex tax code is acknowledged, but some have raised questions about the process and the agency’s evaluation of the Direct File pilot program.
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