IRS disintermediation has occupied a decades-long place on the tax-prep industry’s list of threats. Players such as TurboTax and H&R Block have bounced from alarm to preparation to complacency as potential disruptors arrive and disappear with little fanfare. Previous free filing options from the IRS arrived like shy party crashers, making the scene but barely putting a dent in the action.
This time, it appears the IRS is crashing the party for real. It’s
TurboTax and H&R Block are going to try to protect the industry average $250 per tax filer set to reach a tidy $14.4 billion in revenue in 2023 alone. They’ll go at this with a combination of lobbying aimed at quashing the threat, product innovation to make it obsolete at birth, and competitive advertising to tout their perceived superiority.
Without a doubt, there’s room for improvement in the tax-filing process. In addition to the insult of being asked to pay money for the privilege of paying money, taxpayers spend an average of 13 hours preparing taxes. For most tax-paying Americans, these are among the least enjoyable hours of the year.
If the IRS can overcome the challenges in making filing taxes both free and easier, it will be a boon not only to taxpayers, but also to how positive the agency appears to the public.
The DiGo/Market Theory Positive Habit Index shows that organizations perceived to be good for people by improving their habits have a much easier time gaining support in the market place and growing market share. This includes the political sphere. The IRS certainly suffers in this area and likely views its eroding level of support as a burning platform. Thus, the IRS may be more motivated than ever to give beleaguered tax payers this gift.
The citizens’ desire for a better way is unambiguous—most Americans want a free IRS tax filing tool. And given the demand from citizens, the tool could be a much-needed net positive brand performance score for the IRS and US government.
And if millions of taxpayers flock to the IRS’s free-to-use filing system, for-profit tax preparers like TurboTax and H&R Block will try to move upmarket to compete with the industry leader—tens of thousands of independent accountants and tax preparers. That said, local CPAs aren’t too worried about this, and they’re probably right not to be. Decades of trying hasn’t undermined their loyal clientele, and it’s unclear what would change the mind of someone who is well serviced by their local independent.
At the same time, for-profit tax preparers would move downmarket to capture earned income tax credit receivers who may need help to get the government money to which they are entitled. In theory, these people would benefit most from the government’s free offering, putting all of the money they have coming in their pockets.
However, the challenge of free offerings is that they seldom are supported with large, consistent, and effective advertising campaigns. People don’t do things they aren’t aware of. The for-profit industry pumps revenue into advertising aimed at bringing awareness to every corner of this market. When the message is, “You may have a lot of money coming to you,” the response is likely to be strong.
Free online tax filing by the IRS wouldn’t be the end of for-profit tax prep giants, but it likely would be the beginning of a more precipitous decline. A successful launch of a user-friendly IRS direct pay system would take a pin to the industry’s balloon. This could deflate the already challenged accounting and tax prep industry, leading to more consolidation through mergers and acquisitions, with bankruptcies and closures down the line.
However, all of this would be a price worth paying for a simple, effective, free way for tens of millions to file taxes each year and get their full refunds.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Mark DiMassimo is the founder and creative chief of DiGo (DiMassimo Goldstein), an agency in positive behavior change marketing, which he founded in 1996 in New York City.
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