Direct File Tool Hated by Tax Prep Firms Target in GOP Bill (1)

Republicans in Congress are floating legislation that would halt the IRS’s new free digital tax-filing tool, the latest volley in efforts by the GOP and private-sector tax preparers to roll back the service.

A pair of bills introduced by Sen. Marsha Blackburn (R-Tenn.) and Rep. Adrian Smith (R-Neb.), both members of their respective chambers’ tax-writing committees, would halt operation of Direct File or any successor program.

Smith and Rep. Chuck Edwards (R-N.C.) filed similar legislation last summer. The current bill is one of many proposals Republicans are considering as they kick off the budget reconciliation process, which allows them to renew or change tax law by the end of the year without consulting with Democrats.

“By taking on the role of both tax preparer and tax auditor, the IRS created an undeniable conflict of interest when it circumvented Congress to establish the Direct File program,” Blackburn said in a statement. “This legislation would right this wrong.”

Read more How Direct File Will Work in 2025: Free Tax Filing, Explained

Direct File will be available to about 30 million low- to moderate-income taxpayers in half of US states during the filing season that starts later this month.

But advocates for tax preparation platform providers like H&R Block and Intuit, along with their Republican allies in Congress, have argued the service is duplicative and expensive. It’s expected to cost the US government more than $34 million this filing season.

“We strongly support giving the IRS the resources it needs to bolster customer service,” said David Ransom, counsel at the American Coalition for Taxpayer Rights, a group of tax-prep companies. “But the IRS has more pressing priorities than trying to duplicate what the private sector is effectively doing and we are eager to support this legislation and see it quickly enacted into law.”

Democrats’ 2022 tax, climate, and healthcare law known as the Inflation Reduction Act set aside $15 million for the IRS to report on the feasibility of creating a direct e-filing tax return system. Treasury leadership subsequently directed the IRS to create the service’s pilot, which ran in a dozen states last year.

Republicans’ legislation would keep in place the Free File system, an existing IRS partnership with no-fee tax preparation software companies for taxpayers with an adjusted gross income of $84,000 or less in 2024.