Skip to content
Federal Tax

Democrats Sign Off on IRS Direct File as Fix to ‘Broken System

Tim Shaw  

· 5 minute read

Tim Shaw  

· 5 minute read

A group of 99 Democratic lawmakers expressed their support of an in-development pilot program at the IRS to allow taxpayers to file their returns directly with the agency without the need of third-party preparation software.

Senators Elizabeth Warren of Massachusetts and Tom Carper of Delaware, as well as Representatives Brad Sherman and Katie Porter of California and Virginia’s Don Beyer, led a bicameral cohort of Democratics to give the IRS Direct File project their stamp of approval in a June 26 letter to IRS Commissioner Danny Werfel and Deputy Secretary Wally Adeyemo.

In May, the IRS delivered to Congress a report evaluating public interest and the viability of a free e-filing system created and operated in house at the agency. Given the report’s findings that Direct File could be popular with taxpayers and a potentially worthwhile investment of resources—especially using funds from the Inflation Reduction Act (PL 117-169)—the IRS announced that it plans to use the 2024 filing season as a trial run taxpayers can opt into.

“We urge you to make this pilot of the direct file tool available to as many taxpayers as is feasible, in order to deliver real value quickly to American taxpayers and demonstrate the value of modernizing the IRS, while also gathering data to make improvements and to better serve American taxpayers,” the lawmakers wrote. “We also know that next year’s pilot is only the first step toward the robust direct file system that Americans deserve.”

Although the IRS already partners with select third-party tax software providers in the Free File Alliance to allow qualifying taxpayers to complete and file returns at no cost, only a small fraction of eligible individuals participate. Specifically, as determined by the Treasury Inspector General for Tax Administration (TIGTA) in February 2020, 2.5 million of a possible 104 million people took advantage of Free File in 2019, just 2.4%. The Democrats’ letter, citing the National Taxpayer Advocate’s 2022 Annual Report to Congress, provided more recent data showing that percentage falling to just 2% despite 70% of taxpayers qualifying.

Their letter, in advocating for a “common-sense solution” they (and the IRS) hope Direct File will be, makes a dig at tax prep juggernaut Intuit, which agreed to a $141 million settlement for misrepresenting the true cost of the “free” versions of TurboTax. Settlement payments started going out to last month, according to the lawmakers.

Intuit was previously a part of the Free File Alliance but left in 2021 “due to limitations within the program and conflicting demands from those outside the program,” the company said in a blog post at the time. Intuit’s quarterly financial report to the Securities and Exchange Commission for the period ending January 31, 2017, included mention of the company’s worry of “governmental encroachment at both the federal and state levels” that could pose “a continued competitive threat” to its business “for the foreseeable future.”

Warren, Porter, and Sherman previously wrote to TIGTA leadership almost exactly a year ago about “troubling reports” on Intuit’s so-called revolving door practices involving the hiring of formal federal regulators and spending over $3 million per year on lobbying efforts. They had engaged in a contentious back and forth with the company in attempts to extract more information about what was described in an April 2022 letter to Intuit as “shady practices” that “scam American taxpayers into paying for services that should be free,” as well as the “adroit influence-peddling” by ex-government officials.

Carrying this scuffle with the commercial tax software industry over to the IRS’ pursuit of detaching itself from proverbial middlemen entirely, Monday’s letter read: “This broken system is not only an unauthorized tax on middle-class families, but also a significant obstacle to the IRS fulfilling its role as our country’s second-largest benefits administrator.”


Get all the latest tax, accounting, audit, and corporate finance news with Checkpoint Edge. Sign up for a free 7-day trial today.

More answers