April 20, 2023

ICYMI: At Hearing, IRS Commissioner Agrees with Warren that Free-File Program Has a “Massive” Deficit in Meeting Goals, Taxpayer Rights Have Been Violated, and Whole Tax Filing Process “Needs to Be Improved”

Warren Calls out Tax Prep Companies for Sabotaging Free-File Program; Calls on IRS to Implement Simple, Free Tax Filing Program for Millions

Hearing Exchange (YouTube)

Washington, D.C. – At a hearing of the Senate Finance Committee, U.S. Senator Elizabeth Warren (D-Mass.) questioned Internal Revenue Service (IRS) Commissioner Daniel Werfel about the Internal Revenue Service’s (IRS) failed Free-File partnership with private tax preparation software companies and called on the agency to implement a direct E-File program that will be truly free and easy for millions of Americans. 

In response to questions about tax prep companies sabotaging the IRS Free-File program and the trouble that millions of taxpayers face finding affordable, simple, or free filing options, Commission Werfel agreed with Senator Warren that the gap between the 70% of taxpayers that Free File is supposed to serve and the 2% it actually does is “massive.”  When Senator Warren pointed out that tax prep companies are instead pushing alternative services that should be free, are marketed as free, but are not, Commissioner Werfel also agreed that “the whole process needs to be improved,” that taxpayer rights have been violated, and the IRS has an obligation to make “the tax system easier for taxpayers to navigate.”

Transcript: The President’s Fiscal Year 2024 IRS Budget and the IRS’s 2023 Filing Season
U.S. Senate Committee on Finance
Wednesday, April 19, 2023

Senator Elizabeth Warren: So for years, lobbyists and anti-tax extremists have worked to get the IRS to prevent it from chasing down wealthy tax cheats, and to keep it from being able to help Americans who are honestly trying to file their taxes. But thanks to the Inflation Reduction Act, the IRS now has the resources it needs to make tax filing free and easy. 

This has been on the IRS agenda, their to-do list for decades. Back in 2003, the IRS set up the Free-File program, which was a partnership with companies like Intuit and H&R Block that was supposed to make filing free for 70% of taxpayers. 

But today, that Free-File program serves just 2% of Americans. And that's because the tax prep companies sabotaged the program so they could keep raking in money, deliberately hiding Free-File webpages from Google searches and confusing eligible taxpayers by marketing other fake free programs to them, only to scam them by collecting a fee later on. 

So let me start here, Commissioner Werfel. Do you agree that the current Free-File program is a failure?

Daniel Werfel, Commissioner, Internal Revenue Service: I agree it's not reaching as many people as it should.

Senator Warren:  Yeah, the difference between 2% and 70%. 

Commissioner Werfel: It’s massive.

Senator Warren: I think, I think that's a failure. Tax prep companies have sabotaged the Free-File program. They've tricked and trapped American taxpayers, and paying for alternative services that should be free that are marketed as free, but in fact, they don't make free. And the result is that today, the IRS reports that Americans waste an average of 13 hours and $250 each year filing their taxes. And the Treasury Department analysts estimate that about 12 million low-income Americans miss out on thousands of dollars in refunds, likely because it is too expensive and too difficult to file through these supposedly free options. 

So Commissioner Werfel, do you agree that the private tax filing options that companies are pushing instead of Free-File is also failing American taxpayers?

Commissioner Werfel: The whole process needs to be improved, I agree. We need better clarity. When I hear the premise of your question, I think about the Taxpayer Bill of Rights and just ticking off, three of them were violated just in your question in terms of the implication. 

So we have, we have an obligation to make the taxpayer, the tax system easier for taxpayers to navigate. And, you know, Congress hands us a very complicated tax code.

Senator Warren: I understand that. 

Commissioner Werfel: And we have to make it simpler. And so yeah, I want to work with, with, with you and with this Committee and with taxpayers to make that process easier. And if they are eligible for Free-File, and they're not taking advantage of that or are getting tripped up along the way, what can we do to help. 

Senator Warren: Okay, so look, the Government Accountability Office, the National Taxpayer Advocate, Treasury Secretary Yellen, many of our colleagues on this Committee all agree that it is high time for the IRS to develop its own truly free and easy way for hardworking Americans to file their taxes and to claim their refunds. 

And thanks to the Inflation Reduction Act, the IRS now has the resources to do so, including dedicated funding to develop a roadmap for direct E-Filing options with a report to Congress due next month. Now, I'm looking forward to the report. You don't have to say here what it's going to do. I know we'll have an opportunity then to talk more about the specifics of what the IRS can do to help tax filers. 

But broadly speaking, Commissioner Werfel, can you explain why offering a free and easy way for to file directly with the IRS would help American taxpayers, particularly low income and middle income families?

Commissioner Werfel: Again, as you said, we’re issuing a report by congressional mandate in mid-May, and that will walk through a lot of the issues. I think one of the goals that we have at the IRS is to increase the options that taxpayers have to engage with us. If they want to fully digital, they should have a fully digital. If they want to do it in paper, we’re not thrilled with that, but we have to meet taxpayers where they are. And if they want to come directly to the IRS versus working through a third party, we now have the opportunity to study that and tell Congress what the implication of that is. 

I'm, as a guiding principle, the more workable options, the better. But because Congress asked and has legitimate questions about the, the issues associated with the Direct File program, we're going to answer them and then I'll come back in mid or late May. And we can talk through what the report said.

Senator Warren: Well, I look forward to that. And I think it's clear that Americans deserve an IRS that ensures that folks at the top pay what they owe, and that honest, hardworking Americans can file their taxes without spending an excessive amount of time or a lot of money to get that done. And I think that's where we're aiming. Thank you.