Private tax filing companies have dominated the tax system in America for many years now, but a recent challenge to this has come from the government: Direct File. Earlier this year, the IRS introduced a limited 12 state pilot version of Direct File, a software that helps taxpayers file their taxes for free, for select individuals with simple tax information, with more than 140,000 Americans using it. The software was seen by users as easy to use but was also seen as challenging the position of private tax filing companies. David Ransom, a lawyer who represents the tax software industry group American Coalition for Taxpayer Rights, said that “[t]here’s not a real demand there for this” and that the effort was a “political push”.
Seeming to ignore this corporate response, the IRS has moved forward with its plan to expand Direct File by asking all 50 states and the District of Columbia to help taxpayers use a new federal tax filing system called Direct File. This further expansion, assuming continued efforts to improve the software to accommodate more Americans, could lead to better taxpayer experiences as expensive and unnecessary middlemen are cut out of the equation and Americans keep more of their money.
However, some companies have continued to criticize the effort. Derrick Plummer, a spokesperson for the tax preparation company Intuit, said “every American can already file their taxes for free, without any cost to the government or taxpayers”, referring to the IRS’ Free File Program. The Free File Program is a public-private partnership that allows individuals whose income is less than $79,000 to file taxes for free, but it is done through private companies like Intuit. The new Direct File is done solely through the government.
Unfortunately for Direct File proponents though, its success may be limited by November’s elections. Republicans have been keen on reducing the scale of the IRS, including a $1.4 billion reduction to IRS funding in last year’s budget cuts. A Trump victory in 2024 could see the IRS’ plans inhibited.
