Senator Warren, Representative Porter Seek Answers from Tax Prep Companies on Millions Spent Lobbying Against Popular, Simple, Free File Option
“The IRS’ creation of a free, government-run direct filing tool would benefit taxpayers and rein in the predatory and exploitative behavior of tax prep companies.”
Washington, D.C. – U.S. Senator Elizabeth Warren (D-Mass.) and Representative Katie Porter (D-Calif.) sent a letter to the Free File Alliance, the American Coalition for Taxpayer Rights, Intuit, and H&R Block following their relentless lobbying efforts against the Internal Revenue Service’s (IRS) direct free filing tool. The letter comes two months after Senator Warren released a report that found that tax prep companies were violating taxpayer privacy and engaging in potentially illegal behavior by sharing sensitive taxpayer data with Big Tech firms.
“Recent revelations about tax prep companies’ abusive tactics, including reckless data sharing and deceptive advertisements, illustrate why this tool is essential for taxpayers, and your organization and its members should not be allowed to undermine the IRS’ efforts to better serve taxpayers,” wrote the lawmakers.
The IRS direct free filing tool will offer taxpayers an alternative to expensive commercial tax prep software and the failed Free File program, which is run by the tax prep companies.
“Free File’s failure is not an accident,” wrote the lawmakers. “Tax prep companies have used deceptive practices and outright lies to push consumers from Free File into paid programs, including deliberately suppressing Free File websites from search results and channeling taxpayers into in-house ‘freemium’ programs that charge for services that would be free under Free File.”
Twenty years ago, tax preparation companies successfully lobbied to prevent the IRS from creating and implementing a free and automatic tax preparation system, intended to provide 70% of taxpayers with a free tax preparation option. However, by 2018, only approximately 3% of taxpayers were participating each year, due in large part to tax prep companies’ deceptive practices like changing the name of the free program and deliberately hiding it from Google search results to funnel people into their programs.
To make matters worse, a recent report from the offices of Senator Warren and Representative Porter revealed that tax prep companies were providing sensitive personal and financial information of millions of taxpayers to Meta and Google, including taxpayers’ filing status, approximate adjusted gross income, approximate refund amount, and names of dependents.
“This outrageous breach of customer trust may have broken federal and state law prohibiting tax preparers from disclosing or using taxpayers’ tax return information for purposes other than preparing their return,” wrote the lawmakers.
In the letter, the lawmakers outline tax prep companies’ failure to protect taxpayers and relentless lobbying efforts to block the implementation of a free file option. They are calling on the Free File Alliance, the American Coalition for Taxpayer Rights, Intuit, and H&R Block to provide answers to their questions no later than September 6, 2023.
Senator Warren has been at the forefront of holding tax prep firms accountable for their behavior and pushing for an effective IRS direct free file program:
- In June 2023, Senators Warren and Carper and Representatives Sherman, Porter, and Beyer led a coalition of 99 Democratic lawmakers in sending a letter to Internal Revenue Service (IRS) Commissioner Daniel Werfel and Deputy Treasury Secretary Adewale Adeyemo, applauding the IRS’ announcement of a pilot of a free tax filing tool next year.
- In April 2023, Senators Warren and Carper led their colleagues in sending a letter to IRS Commissioner Daniel Werfel urging the agency to simplify the tax process and broaden access to free e-filing options.
- In April 2023, at a hearing of the Senate Finance Committee, Senator Warren questioned Internal Revenue Service (IRS) Commissioner Daniel Werfel about the IRS’s 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.
- 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.”
- In March 2023, Senators Warren and King wrote a letter with 19 other senators to the Internal Revenue Service and Secretary Yellen expressing strong support for Secretary Yellen’s directive for the IRS not to raise audit rates for small businesses or households making under $400,000 annually.
- In December 2022, Senators Warren and Wyden, along with Representatives Porter and Sherman sent letters to tax preparation companies H&R Block, TaxAct, and TaxSlayer, plus big tech firms Meta, and Google, amid reports that the tax preparation companies have been secretly transmitting individual taxpayers’ sensitive financial information to Meta and Google.
- In July 2022, Senator Warren led 22 of her colleagues in introducing the Tax Filing Simplification Act of 2022 to simplify the tax filing process for millions of Americans by lowering costs, eliminating red tape for all taxpayers, and saving them hours and hundreds of dollars.
- During an exchange of the United States Senate Finance Committee in June 2022, U.S. Treasury Secretary Janet Yellen agreed with Senator Warren on the need to create a free tax filing system that actually works for Americans.
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