NTA Blog, The Free File Program Is Failing to Achieve Its Objectives and Should be Substantially Improved or Eliminated:
I highlight my concerns with the IRS Free File program, which I also discussed in my 2018 Annual Report to Congress and my recent testimony before the House Ways and Means Subcommittee on Oversight. I also describe my personal experience using Free Fillable Forms and make some recommendations for improving these products.
The IRS Restructuring and Reform Act of 1998 directed the IRS to set a goal of increasing the e-file rate to at least 80 percent by 2007. In 2002, the IRS entered into an agreement with a consortium of tax software companies, known as Free File, Inc. (FFI), under which the companies would provide free tax return software to a certain percentage of U.S. taxpayers, and in exchange, the IRS would not compete with these companies by providing its own software to taxpayers. The agreement has been renewed at regular intervals, and for at least the past decade, the agreement has provided that the consortium would make free tax return software available for 70 percent of taxpayers (currently, about 105 million), particularly focusing on increasing access for economically disadvantaged and underserved communities, as measured by adjusted gross income.
The program provides two return preparation options for taxpayers that can be accessed on the IRS.gov homepage:
- Free File Software: options for online software to guide taxpayers through return preparation available to taxpayers with incomes less than $66,000; and
- Free File Fillable Forms: an electronic version of IRS paper forms available to all taxpayers, regardless of income.
The Services Provided by Free File, Inc. Fail to Meet the Needs of Taxpayers, and Use of the Program Continues to Decline
While e-filing has increased by over 180 percent since 2002, use of the Free File program has not. In 2018, individual taxpayers filed more than 154 million tax returns. Yet fewer than 2.5 million of those returns, or 1.6 percent, were filed using Free File software (this calculation does not include the number of taxpayers who used Free Fillable Forms to file their tax returns). Thus, about 68 percent of all taxpayers were eligible to use Free File software but did not do so—frequently paying to purchase the same or comparable software instead. In fact, use of the Free File program has decreased since 2014—meaning that taxpayers who used Free File in previous years chose a different option to file their returns in the following year.
In comparison, paid preparers filed almost 78.6 million tax returns electronically in tax year 2017. Over 3.5 million returns were prepared through Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs, a higher number than prepared by FFI despite the fact that taxpayers must expend more time and resources to go to one of these sites.
In addition, data on repeat usage suggest Free File users are widely dissatisfied with the program. Among taxpayers who used Free File software in 2017, the majority (51 percent) did not use Free File software again in 2018. ...
[I]if the IRS continues to show no appetite for monitoring and overseeing, including testing, its Free File offerings, I recommend it terminate that aspect of the program and instead focus on improving and promoting Free Fillable Forms. At any rate, the IRS should improve Free Fillable Forms by:
- Linking from a specific line on the 1040 to the instructions for that line (rather than to the beginning of the instruction, making the user page through scores of pages);
- Linking from IRS form instructions to IRS publications wherever IRS forms reference IRS publications;
- Creating versions available in other languages, including Spanish;
- Ensuring the program is compatible with major printers;
- Enabling users to save a copy of their return to their personal electronic devices; and
- Providing a dedicated email address where taxpayers (such as the National Taxpayer Advocate) can get help when experiencing technology glitches.