January 03, 2020
Senator Warren, Rep. Sherman Release Statements on the IRS's Free File Addendum
Washington, DC - United States Senator Elizabeth Warren (D-Mass.) and Representative Brad Sherman (D-Calif.) today released statements regarding the Internal Revenue Service's (IRS) December 30th announcement that the agency has amended its agreement with a consortium of tax preparation companies that participate in its Free File program. This IRS action roots out some of the worst abuses of the program by Intuit and other big tax preparation companies, and ends the ban on the IRS developing its own free-filing program. However, the IRS should have gone further to ensure that the 97% of eligible taxpayers who did not use the program last year are able to access and use Free File services, in pursuit of fulfilling the program objective of "extending the benefits of online federal tax preparation and electronic filing to economically disadvantaged and underserved populations at no cost to either the individual user or to the public treasury."
"For more than five years, I've pushed to replace the IRS Free File program that has let giant companies trick taxpayers into paying for services that should be free with an IRS-run program," said Senator Warren. "Persistence works: I'm glad that the IRS has reformed the program to ban the worst tricks companies use to squeeze taxpayers and allow the IRS to compete with Intuit and other companies. I will continue to hold the IRS's feet to the fire until millions of eligible taxpayers are truly able to file their taxes free of charge."
“I applaud this decision by the IRS to address the concerns Senator Warren and I raised earlier this year by putting in place new protections for taxpayers. Private tax preparation companies have promised to provide free tax filing software but have misled consumers and steered them towards unnecessary and expensive services,” said Representative Sherman. “I hope that we soon see a free alternative from the IRS as outlined in the Tax Filing Simplification Act. Only the IRS could provide software that is not only free, but comes auto filled with the information from the W-2 and 1099 forms the IRS receives from the taxpayer’s employers and banks.”
The Free File program was created in 2002 to provide free, online tax filing services to low-income and underserved taxpayers, but the IRS delegated the operation of this service to a consortium of private tax preparation companies called the Free File Alliance. Although 70% of taxpayers are eligible for the Free File program, less than 3% of eligible taxpayers use it. ProPublica reporting and further investigation by Senator Warren's staff found that five of the twelve tax preparation companies that participate in the Free File program used special coding to hide their Free File products from appearing in online search results and, instead, directed taxpayers to tax filing products that charged them fees and generated profits for the companies.
In April 2019, Senator Warren and Representative Sherman led their colleagues in reintroducing bicameral legislation, the Tax Filing Simplification Act, that would ease the tax filing process for millions of American taxpayers and reduce their costs. The legislation would also dramatically simplify the filing process for individuals with simple tax situations; direct the IRS to develop a free, online tax preparation and filing service that does not require the sharing of private information with third parties; and prohibit the IRS from entering into agreements that restrict its ability to provide these services.
Senator Warren has long fought to protect taxpayers from unfair and deceptive practices. In addition to sponsoring the Tax Filing Simplification Act:
- In 2016, she released "Tax Maze," an investigative report that revealed how the tax preparation industry blocks the federal government from making Tax Day easier and called on the Government Accountability Office (GAO) to investigate tax preparation products.
- Following further reports of Free File members' deceptive practices, Senator Warren led letters to the IRS and the Federal Trade Commission calling for investigations and for the IRS to force private tax preparation companies to refund consumers who were eligible for Free File but were steered into paid products.
- She also asked Intuit's CEO to respond to reports that Intuit is deceiving American taxpayers about their tax filing options by deliberately directing them to costly profit-generating products, rather than to the free tax-filing option the company has agreed to provide eligible taxpayers.
- In 2019, based on findings of the GAO report she requested that shows low-income and some taxpayers of color are more likely to use expensive tax-time financial products to meet immediate financial needs, she led letters calling on the IRS to improve the tax refund process.
- She requested information from the IRS about their decision to sign a new Memorandum of Understanding with Free File Alliance companies days before the IRS Advisory Council was set to release a report that was highly critical of the program.
- She secured changes to the Taxpayer First Act to protect the federal government's ability to create its own free tax filing program.
- She also urged the IRS to select consumer advocates and individuals representing the needs of low-income, elderly, disabled, and non-English-speaking taxpayers to serve on its Electronic Tax Administration Advisory Committee.
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