Don't Mess With Taxes

The IRS has been given millions of dollars to look into how to transform Free File from a partnership with private sector software companies into a system solely under the tax agency's control.

Last year, the Internal Revenue Service received more than 152 million electronically filed tax returns. Nearly 67 million of those digital 1040s came directly from individual taxpayers. The 2023 filing season data so far seem to be a repeat of prior seasons.

The IRS' weekly filing statistics, however, don't dive deeper into just how the individually sent e-filings were delivered. So we don't know how many of those e-filed returns arrived via Free File, the IRS' partnership with private sector tax software manufacturers to provide no-cost return preparation and filing for millions.

But it's a safe bet that a lot of taxpayers paid for the software to complete and e-file their returns, even though they were eligible to use one of the programs offered by Free File. This year, seven companies offer tax prep and e-file options to taxpayers whose 2022 adjusted gross income, regardless of filing status, was $73,000.

The reasons for ignoring Free File, which has been around for two decades, are many. But they lead to one conclusion.

Free File has never really caught on like the agency or the participating companies had hoped. In fact, in recent years the two biggest tax software companies, Intuit which makes TurboTax and H&R Block, left Free File.

Looking to go to IRS alone: Free File's struggles have provided new impetus for those who think it's time for a different electronic tax filing approach.

They still want us to be able to go to IRS.gov and file for free there, but by using a system created and operated only by the tax agency. They want to cut out Free File's private sector tax software partners.

To help jumpstart such a switch, $15 million of the nearly $80 billion allotted the IRS in the Inflation Reduction Act is going toward a report on an eventual federal electronic filing system that is administered solely by the IRS.

The study, which is supposed to be delivered to Congress in May, will examine how much such a program would cost, how taxpayers would feel about using it, and whether a third-party expert thinks the IRS could successfully build and maintain such a system.

Just some guesses on my part to those three areas of investigation, but I'd say a whole lot, trepidatious, and ehhh….

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A preview of an IRS-only e-file system: Snarky skepticism aside, it's a big deal and a bigger job. These challenges are the focus of a recent story in The Hill newspaper, Here's what a free IRS e-filing tax return system could look like, which gets this weekend's Saturday Shout Out.

Tobias (Toby) Burns, an economics reporter for The Hill who wrote the story, notes that it's not clear to what extent the report will lay out the actual design specifications for such a platform. But he notes that some policy groups that have already started coming up with their own ideas and suggestions.

Burns also reminds us of what we already know when it comes to government agencies and timetables. It could be years before the IRS launches an eventual e-filing system.

If that does happen, then patience is a good thing. We all want it to be done correctly, and in a way that helps taxpayers, rather than as a kneejerk reaction to put something up quickly just to get anything done.

You also might find these items of interest:

• 5 tax tips for Free File users
• What's new when it comes to filing your 2022 taxes
• IRS' new 5-year plan aims to improve taxpayer service
• More returns filed early in 2023, but average tax refund amount is smaller

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