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IRS’s Free File Partners Moving Forward Without H&R Block

June 18, 2020, 6:05 PM

The remaining nine companies that partner with the IRS to provide a free tax-filing service will continue to do so, despite H&R Block Inc.'s decision to leave the program.

Under the Free File program, the IRS and a group of private tax preparation companies, known as the Free File Alliance, offer free online tax preparation and electronic filing to individuals with incomes of $69,000 or less. H&R Block has been a part of that alliance for almost two decades, alongside other well-known companies such as Intuit Inc., the maker of TurboTax.

H&R Block will exit the program in October, Jeffrey J. Jones, its president and CEO, said this week on an earnings call. Tim Hugo, executive director of the Free File Alliance, confirmed Thursday that none of the other companies have talked about leaving.

“Despite Block leaving, the Free File Alliance will continue to support American tax filers as it has over the years,” said a spokesperson for TaxAct Holdings Inc., a member of the alliance. Intuit also told Bloomberg Tax it remains committed to the program. Several other members didn’t return requests for comment.

The Free File program has been plagued by controversy following ProPublica’s reporting that some participants, including H&R Block, deliberately hid available free filing options and actively steered customers into paid products. Those reports led to pressure from lawmakers for the IRS to review the program and police its private partners better.

H&R Block’s departure will come at the end of this tax season. October 15 is the tax filing deadline for individuals who have gotten an extension.

“We just think it’s in the best interest of the company to move forward in a different direction,” Jones said. He noted on the earnings call that H&R Block offers three free-filing options outside of the IRS’s program.

IRS’s Own Service?

Following the criticisms of Free File, the IRS tweaked the program, including changing its original agreement with participating companies. The updated agreement removed a line in which the federal government pledged not to enter the market for tax-return software and e-file services.

The agreement—both before and after the change—requires the IRS to give the participating companies a year’s notice if it decides to commit resources to its own free filing service.

Prominent lawmakers, including Sens. Elizabeth Warren (D-Mass.) and the Ron Wyden (D-Ore.), the top Democrat on the Senate Finance Committee, have advocated for this idea. Wyden and Warren didn’t immediately return requests for comment.

Even with H&R Block leaving the Free File Alliance, it’s unlikely that the IRS takes that leap to its own free-filing service, said Jeff Trinca, vice president of Van Scoyoc Associates in Washington.

“I think the logistics of setting up and operating their own site is just a bridge too far for the IRS,” he said, adding that it would require more funding from Congress.

The IRS didn’t return a request for comment. Hugo at the Free File Alliance said the agency hasn’t indicated it has an interest in developing its own service.

“In fact, Free File companies are already working closely with the IRS to prepare for the next tax return season,” Hugo said.

To contact the reporters on this story: Allyson Versprille in Washington at aversprille@bloombergtax.com; Faris Bseiso in Washington at fbseiso@bloombergindustry.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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