May 03, 2019

Warren Leads Colleagues Calling for the FTC and IRS to Investigate and Oust Tax Preparation Companies Profiting by Misleading Low-Income Taxpayers

Calls on IRS to terminate five tax preparation companies from the IRS's Free File Program

Washington, D.C. - U.S. Senator Elizabeth Warren (D-Mass.) today sent letters to Federal Trade Commission (FTC) Chairman Joseph Simons and Internal Revenue Service (IRS) Commissioner Charles Rettig regarding recent reports that tax preparation companies that participate in the IRS's Free File program for low-income taxpayers have deliberately hidden their free products from internet searches and instead pushed eligible taxpayers to pay for tax preparation. Senators Edward J. Markey (D-Mass.), Richard Blumenthal (D-Conn.), Tammy Duckworth (D-Ill.), Bernie Sanders (I-Vt.), Cory Booker (D-N.J.), Ron Wyden (D-Ore.) and Representatives Brad Sherman (D-Calif.), Eleanor Holmes Norton (D-D.C.), Donald Beyer (D-Va.), Jackie Speier (D-Calif.), Katie Hill (D-Calif.), Earl Blumenauer (D-Ore.), and Tim Ryan (D-Ohio) joined the letter to the FTC. Senators Edward J. Markey (D-Mass.), Richard Blumenthal (D-Conn.), Bernie Sanders (I-Vt.), and Cory Booker (D-N.J.) and Representatives Brad Sherman (D-Calif.), Eleanor Holmes Norton (D-D.C.), Donald Beyer (D-Va.), Jackie Speier (D-Calif.), Katie Hill (D-Calif.), Earl Blumenauer (D-Ore.), and Tim Ryan (D-Ohio) joined the letter to the IRS.

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.

However, a recent ProPublica report and further investigation by Senator Warren's staff found that five of the twelve tax preparation companies that participate in the Free File program use a code to hide their Free File products from appearing in online search results and instead direct taxpayers to tax filing products that charge them fees - and generate profits for the company.

"The fact that nearly half of Free File members are employing this deceptive practice is presumably a partial explanation for why so few eligible taxpayers use Free File at all," wrote the lawmakers in a letter to FTC Chairman Simons. "These companies' actions in hiding Free File from search engine results -- and therefore from consumers -- in order to artificially inflate profits and deprive low-income consumers of a cheaper product merit investigation as unfair and deceptive practices."

In the letter to the FTC, the lawmakers cite Section 5 of the Federal Trade Commission Act, which states that the FTC has the authority to investigate and prevent "unfair or deceptive acts or practices in or affecting commerce," to urge the FTC to open an investigation into "whether these companies' efforts to hide Free File from search results constitute unfair and deceptive practices." The lawmakers also cite the agency's authority under antitrust law to investigate whether the five companies engaged in "unfair methods of competition, and determine if they entered into an illegal agreement to do so."

The lawmakers are also calling on the IRS to terminate agreements with these companies and ensure refunds are issued to taxpayers who improperly paid for services as a result of these deliberate actions that reduced access to Free File products for consumers. In a letter to IRS Commissioner Rettig, the lawmakers wrote: "In light of this abusive conduct on the part of companies that have broken their pledge to increase access to free, online tax filing, I urge you to take any available actions to remove them from the Free File program. I also urge you to refund tax preparation fees to taxpayers who should have had access to Free File but were unable to find it."

To better understand the IRS's next steps to remedy this situation, the lawmakers have requested responses to their questions about the IRS's plans for improving oversight of the Free File program and protecting the interests of low-income taxpayers by May 17, 2019.

Senator Warren has repeatedly drawn attention to the issue of tax preparers' influence at the IRS, including with her Tax Maze report, which details how the tax preparation industry blocks government from making Tax Day easier. In May 2016, she urged the IRS to select consumer advocates, as well as other members representing the needs of low-income, elderly, disabled, and non-English speaking taxpayers, to serve on its Electronic Tax Administration Advisory Committee. In April 2019, she reintroduced legislation that would simplify and decrease the costs of tax preparation and filing and called on the IRS to improve the tax refund process in response to Government Accountability Office findings that show low-income and some minority taxpayers are more likely to use tax-time financial products in part because they are more likely to need quick access to cash to meet their financial obligations.