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IRS, state and local officials looking into alleged tax software efforts to sideline Free File

IRS Free File accessed by taxpayer

Free File is finally getting a lot of attention.

Unfortunately for companies involved in the Internal Revenue Service/tax software partnership, it's not the kind of attention they want.

The IRS now is following state officials in California and New York in looking into whether potential Free File users were intentionally directed away from the program.

Free but not that popular: Free File, as the name indicates, was designed to allow most taxpayers access to no-cost online tax return completion and electronic filing.

The 2019 filing season is its 17th. It's still available to taxpayers through the Oct. 15 extended filing deadline.

However, the program, which each year typically involves around a dozen tax software companies and is scheduled to remain in effect through October 2021, has never gained a large user base.

You'd think the way we humans flock to anything labeled free, taxpayers would be knocking down, at least cyber-metaphorically, Free File's doors. But the program generally attracts only 3 percent of eligible taxpayers annually.

That's astounding, especially when you consider that, according to the IRS, it's designed to be available to around 70 percent of the filing population. This year, that's folks whose adjusted gross income is $66,000 or less, regardless of fling status.

Unaware or misdirected: Many speculated that taxpayers simply were unaware of the Free File options, despite efforts by the IRS and the media (including me and my fellow personal finance writers and bloggers) to publicize the online tax filing option.

Now, however, there is concern that the lack of interest was in part due to more money-driven reasons.

Pro Publica first reported on April 26 that Intuit's TurboTax and H&R Block, two major tax preparation companies, altered computer code on their websites to keep search engine's from finding their Free File options.

That, according to critics of the tax software companies, say it made it virtually impossible for taxpayers seeking help to find the IRS Free File program from the commercial software companies' main web pages.

Both Intuit and H&R Block have defended their marketing practices and assert that the continue to support Free File.

States act quickly: State and local officials on opposite sides of the country were quick to jump into the not-free Free File controversy.

New York Gov. Andrew Cuomo quickly called on two state agencies, the Department of Financial Services and the Department of Taxation and Finance, to investigate the search blocking claims.

Los Angeles' City Attorney Mike Feuer was on Empire State heels, filing on May 6 civil complaints against Intuit an H&R Block.

Feuer charges in the filing that despite participating in Free File, the companies have for years been "actively undermining public access to" the no-cost online option "while simultaneously employing deceptive and misleading advertising and design schemes intended to induce taxpayers" into buying their products.

Feds follow-up, too: Several Democratic candidates for that party's nomination also jumped into the taxpayer/consumer fray.

Sens. Elizabeth Warren (D-Mass.), Bernie Sanders (I-Vt.) and Cory Booker (D-N.J.) were among those from their chamber and the House who sent a letter to the Federal Trade Commission asking it to investigate tax software companies' alleged efforts to hide their truly free filing options from search engines.

Senate Finance Committee leaders, Chairman Charles Grassley (R-Iowa) and Ranking Minority Member Ron Wyden (D-Oregon), also wrote the IRS. They urged IRS Commissioner Charles Rettig to look into whether some members of the Free File Alliance violated the spirit of the Free File agreement.

"If participants of the Free File program are actively inhibiting the ability of taxpayers to file for free, corrective action must be taken so that the entire program better serves low- and middle-income taxpayers," wrote Grassley and Wyden.

The Finance Committee leaders also suggested that the IRS reevaluate its agreement with Free File Alliance members "to maximize the efforts of marketing" of the program going forward, "regardless of how those efforts are shared" between the federal tax agency and participating tax software manufacturers.

The IRS agreed, at least with the need to further examine participants actions.

In a statement, the agency said it takes " these issues seriously, and a senior leadership team was assembled to review the current Free File program."

The IRS also promised to "take fast action to ensure the integrity of the program."

Free File confessions: I and I'm sure readers of the ol' blog would love to hear from folks who've used Free File. You can leave your comments below.

To jump start the discussion, here are some Free File and general filing questions:

Do you use tax software?

Do you pay for it?

Or do you get free or discounted access via, for example, your bank, brokerage or professional group membership?

Have you ever tried or considered Free File?

If so, how'd it work for you?

If you qualify for Free File but decided not to use it, why not?

You also might find these items of interest:





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