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IRS to Tweak Free File More After Watchdog Finds Problems (1)

Feb. 5, 2020, 7:04 PMUpdated: Feb. 5, 2020, 9:09 PM

The IRS plans to make more adjustments to a program that lets certain individuals file their taxes for free after the agency’s watchdog said it isn’t monitored or publicized enough.

The plans come more than a month after the agency announced it had updated its agreement with private companies involved in the Free File program. That update followed reports that participants like H&R Block Inc. and Intuit Inc. had used deceptive practices to steer people away from available free options.

Under Free File the IRS partners with private tax software companies to offer free online tax preparation and electronic filing to individuals with incomes under $69,000.

“Our review found that the process taxpayers must follow to participate in the Free File Program is obscure and complex, and there is a lack of adequate advertising and oversight of the Program by the IRS,” the Treasury Inspector General for Tax Administration said in a report released Wednesday.

TIGTA found that only 2.5 million, or 2.4%, of the 104 million taxpayers eligible to file their 2018 taxes for free under Free File did so during the 2019 filing season. Nearly 35 million taxpayers, who met the program’s criteria listed by participating companies on IRS.gov, instead used the companies’ commercial software to file their returns.

“The IRS agrees that there are ways to continue strengthening the Free File program, and we have already taken several steps to improve the program for the current tax season to help taxpayers,” the agency said Wednesday in a statement. Planned steps include both short- and long-term actions, which are identified in a Jan. 10 response from the IRS contained in the TIGTA report.

Millions Unaware

TIGTA also estimated that more than 14 million eligible taxpayers may have been charged a fee to file their returns, based on the results of a survey of a statistically valid sample of 200 taxpayers.

Millions of taxpayers who were eligible for Free File but didn’t use it were unaware of its existence or how to access it, TIGTA said, adding that the IRS needs to do more to advertise the service. The watchdog found that no funds have been allocated to promote the program and its benefits since the end of fiscal year 2014.

The IRS said Wednesday that it wants taxpayers to be aware of all of their options for preparing and filing their taxes, including free services.

Like MITRE Corp., a third-party vendor hired by the IRS in 2019 to review the program, TIGTA found that several companies involved in the program used coding to prevent Internet search engines from displaying their Free File webpages in search results. While the IRS’s initial agreement with participating companies doesn’t explicitly ban that practice, it “contravenes the intent of the Free File Program, which is to offer free tax preparation and e-filing to taxpayers least able to afford these services,” TIGTA said.

TIGTA’s findings confirm that “the Free File program is a mess,” Senate Finance Committee ranking member Ron Wyden (D-Ore.) said Wednesday in a statement. He applauded the IRS’s recent attempts at reforming the program and urged the agency to be vigilant in enforcing the reforms.

Recommendations

TIGTA offered nine recommendations. The IRS agreed with six and partially agreed with three.

The recommendations include the development of a comprehensive outreach and advertising plan, regular reviews of participating companies’ Free File websites, an effort to clearly inform taxpayers of their protections under the IRS’s agreement with the companies, and the development of a process by which taxpayers can give feedback or express concerns about Free File.

The IRS noted, in its response included in the report, that it has already attempted to address some concerns in its updated agreement with companies. The agency announced the changes Dec. 30. But it agreed to take additional steps.

At the same time, the agency said TIGTA’s report “does not duplicate the extensive research performed and reported by The MITRE Corporation.”

It urged people to take both reports into consideration “to obtain a fully balanced and objective assessment of the Free File program.”

(Updates with a statement from the agency starting in paragraph six. )

To contact the reporter on this story: Allyson Versprille in Washington at aversprille@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Kathy Larsen at klarsen@bloombergtax.com

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