Free File Should Remain Free

By Deborah Collier

WasteWatcher, April 2017

Members of Congress and big-government advocates who believe bureaucrats know best just cannot tolerate private sector success.  For example, the well-established and popular Internal Revenue Service (IRS) Free File program, which provides taxpayers that make under $64,000 annually with an option of 12 tax preparation companies to file their taxes at no cost, is under attack.

On March 20, 2017, an article in Consumerist alleged that the Free File system is not easy enough to use, and called on the IRS to write its own software that would automatically fill in the taxpayer’s information, including income based on copies of W-2s and 1099s that are submitted by employers and others to the agency.  The software would then determine the tax liability of the users, and request that they issue the IRS a check.  This is similar to legislation introduced in the 114th Congress by Sen. Elizabeth Warren (D-Mass.), which would make agreements like the Free File Alliance between the IRS and the private sector illegal.

The Free File system was created in 2002 to take effect for the 2003 tax season after the IRS tried and failed to create its own tax preparation program called Cyberfile at a cost of $17 million, in response to a 2001 Bush administration initiative to improve electronic communications from government to government, government to business, and government to citizen.  The Free File Alliance was established by a Memorandum of Understanding between the IRS and private sector tax preparation companies.  There is a stringent application process for companies that wish to participate in the Free File program, and those that have been approved are listed on the IRS website.

A 2009 survey of Free File users found that 96 percent of filers would recommend the program to others.  Free File is now available to be used by more than 70 percent of taxpayers, or approximately 100 million individuals.

In a January 15, 2016 press release, IRS Commissioner John Koskinen said that “Free File software can walk you through the steps and help you get it right,” and “[t]he real winner in this partnership has been the nation’s taxpayers.”

Both Sen. Warren and Consumerist are ignoring the past failure of the IRS to create its own file preparation software, as well as the fact that the agency itself is not expressing any desire to repeat that mistake.  On the IRS website, the answer to the question about why the IRS is not providing its own software and choosing instead to partner with private companies is as follows: “Private industry, with established expertise and experience in electronic tax preparation, has a proven track record in providing the best technology and services available.”  This is quite the opposite of the federal government’s information technology experience, which has been littered with dozens of expensive procurement failures and massive cybersecurity breaches.

Indeed, the agency is so confident in the Free File Alliance that on March 17, 2016, it announced a five-year extension of the 14 year-old program through October 31, 2020.  Improvements include the ability to import prior year information, additional options for free state tax returns, more transparency for any state tax preparation charges, and a new IRS2Go app that can be used on smart phones and tablets.  The IRS reported on March 17, 2017, that more than 50 million people have used the Free File system to date and saved approximately $1.5 billion.

Tearing up the Free File Alliance would flush those savings down the drain. 

It would also open the door to an expensive, duplicative, and ominous “return-free” process that would turn the IRS into the tax judge, jury, and executioner.  The agency would pre-fill the return and send it to the taxpayer, based on information included in a W-2 and 1099 forms.  While the taxpayer would not be required to agree with the IRS’s assessment, the psychology of filling out one’s own form and sending it in for the IRS to review is completely different that receiving something from the IRS that the taxpayer “may” question.  Very few people, if any, would challenge an “official” statement from the IRS calculating tax liability, even if it is not legally binding.

Critics of the Free File Alliance should just accept the fact that the existing system works well and is saving taxpayers money.  It should remain both free for users and free from meddling by members of Congress and others who think only the government knows best.

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