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Tax software companies' free filing tactics help stall IRS reform bill

Free sign in yard_Ken Hawkins via Flickr CC
Photo by Ken Hawkins via Flickr CC

Free. It's the most magical word in the world.

Everyone is always looking to get something for nothing.

That includes tax filing.

A couple of weeks ago, the tax and consumer protection worlds were abuzz over a provision in the Taxpayer First Act of 2019 that cleared the U.S. House with a provision that keeps the Internal Revenue Service from developing its own no-cost tax filing program.

Such total IRS ownership of the form filling and electronic filing is the unicorn of the tax world for many. They oppose Uncle Sam acting as a conduit for money-making tax prep firms that they say too often up sell taxpayers, despite increased prohibitions on such marketing maneuvers.

Firming up Free File: Instead, the bill would make permanent the existing IRS-tax software industry partnership known as Free File.

Eligible taxpayers — this filing season that's folks making $66,000 or less — can use Free File options provided by software manufacturers to complete and e-file their returns at, as the name says, for free.

Now comes a report from Pro Publica alleging that two of the biggest tax preparation firms, H&R Block and Intuit's Turbo Tax, deliberately blocked search engines' access to their sites by not displaying their free filing options.

They did so, according to the New York City-based nonprofit investigative newsroom, by adding code on their websites instructing Google and other search engines not to list their Free File versions in search results.

And this one-two Free File punch could KO the Taxpayer First Act.

House OK's software company role:  The bill already was facing some obstacles. Although it passed the House, it was by voice vote and many Representatives remained unhappy with the Free File limits on the IRS.

Rep. John Lewis (D-Ga.), chairman of the Ways and Means Oversight Subcommittee and a cosponsor of the bill, wrangled enough support by pointing to other pro-taxpayer provisions in the Taxpayer First Act.

In addition to modernizing the IRS, the bill would improve a variety of taxpayer services and strengthen taxpayer protections, particularly in ways to protect taxpayers from tax identity theft.

The legislation also takes aim at one of Lewis' long-standing targets, private debt collectors. The proposal would add restrictions on the bill collectors who, thanks to a controversial prior law, are once again collecting unpaid federal taxes. Lewis has consistently opposed the use of bill collectors to do one of the IRS' core jobs.

Senate more skeptical: Despite its many pro-taxpayer provisions, the bill has its share of skeptics in the Senate, which much pass the House version before it can become law.

Among those with trepidations is Lewis' Democratic colleague Sen. Ron Wyden of Oregon. He's the ranking minority member on the Senate Finance Committee and cosponsor with Senate Finance Chairman Chuck Grassley (R-Iowa) of a companion Taxpayer First Act in that chamber.

But the Free File issue remains a sore spot for Wyden and other Senators.

"I will continue to push for my proposal for the pre-filed 'simple' return and the principle that a taxpayer should not have to use a private company to pay their taxes online," said Wyden in a statement after the House approved its bill on April 9.

Following publication of Pro Publica's story, Wyden said he plans to raise Intuit's software marketing with the IRS.

"The IRS agreement with the tax-preparation software industry requires companies to work to increase the number of taxpayers who file their taxes for free," Wyden told Pro Publica. "Steering eligible taxpayers away from filing for free or blocking the Free File page from search results violates the spirit of the agreement and calls into serious question the justification for the program."

More lawmakers urge investigations: It also puts in doubt what was once seen as a fast track to enactment for the Taxpayer First Act.

Today (May 3, 2019) several senators — including three who are seeking the 2020 Democratic presidential nomination: Elizabeth Warren (D-Mass.), Bernie Sanders (I-Vt.) and Cory Booker (D-N.J.) — sent a letter to the IRS and Federal Trade Commission asking they investigate tax software companies' alleged efforts to hide their truly free filing options from search engines.

Earlier this week, New York's Democratic Gov. Andrew Cuomo also called on two of his state's agencies, the Department of Financial Services and the Department of Taxation and Finance, to examine the computer code search blocking claims.

Until the concerns about tax software company tactics are allayed, the Taxpayer First Act isn't going any further on Capitol Hill.

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