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Monday, May 6, 2019

Taxpayer First Act and IRS Free File Program

H.R. 1957, the Taxpayer First Act, passed in the House on April 9, 2019, includes several provisions intended to improve IRS operations and taxpayer services. One that has received a good amount of media attention is a prohibition that the IRS can't create its own tax prep and filing software.  When I first heard that I was puzzled as I did not see that prohibition in the bill.

But, in looking more carefully, I was reminded of something I always remind my students of - don't overlook what might appear to be unnecessary language and information in parentheses. Sec. 1102 of the House passed bill states that the Treasury Department shall continue to operate the "IRS Free File Program as established by the Internal Revenue Service and published in the Federal Register on November 4, 2002 (67 Fed. Reg. 67247), including any subsequent agreements and governing rules established pursuant thereto."

Well, when you look at that page in the Federal Register, you'll see on page 67249 in the middle column in the bottom half of the page, the following:

"During the term of this Agreement, the IRS will not compete with the Consortium in providing free, on-line tax return preparation and filing services to taxpayers."

I don't know if the IRS has any plans to compete with the many software companies providing tax preparation services, but how broadly might that prohibition be interpreted?  And why tie the IRS hands at all?  A few years ago, the IRS started working on what it calls the IRS Future State. This provides taxpayer with online accounts where they can see their returns and documents and perform many functions, likely also paying their taxes. Might any of this software be prohibited?

Some people think the IRS isn't capable of creating anything too advanced technology-wise as it is a government agency. I disagree. Certainly, it needs funding for any technology modernization. Let's remember that the Internet started from the government's ARPANET project launched in 1958 and this July 20 is the 50th anniversary of men landing on the moon and returning!  That's a lot of government technology.

On 5/6/19, Senators Grassley and Wyden sent a letter to IRS Commissioner Rettig noting concerns with the recent news reports that allege "deceptive advertising practices and practices involving search-engine manipulation by some of the private-sector participants" in the Free File program. They want to receive updates from the IRS as they review the program and how to improve it.

7/1/19 Update: H.R. 3151, which is basically H.R. 1957 without the free file provision was signed into law as Public Law 116-25 (7/1/19).

Also, the existing Free File MOU which expires 10/31/21 is here. We'll have to see if it is renewed by the IRS or if Congress steps in with new legislation, particularly to address some of the concerns raised in the press, particularly by ProPublica (see, for example, its 4/26/19 article).

What do you think?

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