WASHINGTON, May 16 (Reuters) – The Internal Revenue Service said on Tuesday it would launch a free, publicly provided direct tax filing option next year, which could lead to the full-scale launch of an IRS filing system that would compete with private tax preparers .
The IRS said in an exploratory report to Congress that 72% of U.S. taxpayers surveyed said they were “very interested”[ads1]; or “somewhat interested” in using a government tool to file their tax returns electronically.
The agency estimated that a new direct filing system would cost between $64.3 million and $248.9 million a year to operate, depending on the complexity of returns accepted and the number of taxpayers using the system.
The size, scope and complexity of the pilot program, which should be available in the 2024 tax filing season, has not yet been determined, IRS Commissioner Danny Werfel told reporters, adding that Treasury Secretary Janet Yellen directed the IRS to launch the pilot after reviewing reports.
The $15 million study was mandated by the climate-focused Inflation Reduction Act, which was supported only by Democratic lawmakers and provided $80 billion over 10 years for the IRS to strengthen enforcement, modernize technology, improve customer service and rebuild the workforce.
PREPARED, FILED, AUDITOR
Plans for a free filing system have been criticized by congressional Republicans as redundant because of free options for filing simple returns provided by private firms including H&R Block ( HRB.N ) and TurboTax software maker Intuit Inc ( INTU.O ).
Republicans have sought to withdraw $80 billion in IRS investments as part of debt ceiling negotiations.
House Ways and Means Chairman Jason Smith, a Republican, touted the e-archives study as another step in the Biden administration’s effort to “supercharge” the IRS to harass taxpayers.
“Americans will be powerless when the IRS completely controls the tax filing process from start to finish,” Smith said in a statement.
But Laurel Blatchford, the Treasury Department’s chief of implementation of the Inflation Reduction Act, said a free direct filing option could “potentially save taxpayers billions of dollars annually,” because it could cost the IRS less than $10 per tax return filed, compared to about $40. now paid for by taxpayers for simple returns handled by private firms.
Shares of H&R Block closed down 3.1% and Intuit ended down 1.1% on Tuesday.
“With more than 30 organizations already offering free tax preparation, this pilot is unnecessary and faces significant barriers to providing comprehensive tax preparation services,” H&R Block said in a statement, adding that the plan was “a solution without a problem.”
Werfel noted that all filing options would continue, including free e-file options from private firms and nonprofit tax attorney services, paid filing by tax preparers and free paper filing with the IRS.
Funding for a full-scale IRS direct file system must be determined by the Treasury Department and Congress, Werfel said, but could come from the portion of $80 billion designated for system modernization.
Reporting by David Lawder; Editing by Paul Simao
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