Paul L. Caron

Wednesday, February 12, 2020

Inspector General: TurboTax, Other Companies Tricked 14 Million Taxpayers Eligible For Free-File Program Into Paying To E-File Their Returns

Following up on my previous posts (links below):  Treasury Inspector General for Tax Administration, Complexity and Insufficient Oversight of the Free File Program Result in Low Taxpayer Participation (2020-40-009) (Feb. 3, 2020): 

This audit was initiated in response to concerns raised by Congress and other stakeholders.  Their concerns relate to whether the Free File Program is operating as intended, and eligible taxpayers attempting to prepare and e-file their returns at no cost are diverted to tax return preparation services that are not free.  TIGTA’s objective was to assess the IRS’s oversight of the Free File Program.

The complexity, confusion, and lack of taxpayer awareness about the operation and requirements of the Free File Program are contributing reasons why many eligible taxpayers do not participate in the Program.  During Processing Year 2019, only 2.5 million (2.4 percent) of the 104 million eligible taxpayers obtained a free return filing through the Program.  In contrast, more than 34.5 million taxpayers, who met Free File Inc. members’ Free File Program criteria, used the members’ commercial software to file their tax return.

TIGTA called a statistically valid sample of 200 taxpayers who met the Free File Program criteria but used a Free File Inc. members’ commercial software and was informed by 87 (43 percent) taxpayers that they were charged a fee to prepare and e-file their Federal tax return.  Based on these results, TIGTA estimates that more than 14 million taxpayers met the Free File Program criteria and may have paid a fee to e-file their Federal tax return in the 2019 Filing Season.


Sufficient actions have not been taken to educate taxpayers that the only way to participate in the Free File Program is through the IRS website.  IRS and Free File Inc. management informed TIGTA that, to participate in the Program, taxpayers must access the Free File web page and select a link on this web page directing them to a Free File Inc. member’s website.  However, this provision is not in the Memorandum of Understanding (MOU) between the IRS and Free File Inc., and most taxpayers are unaware of this requirement.

In addition, the IRS does not provide adequate oversight to ensure that the Free File Program is operating as intended and in alignment with the MOU.  Moreover, taxpayers are not made aware of protections in the MOU and do not have a process to report concerns.

Prior TaxProf Blog coverage:

IRS News, Tax, Tax News | Permalink


"In addition, the IRS does not provide adequate oversight to ensure that the Free File Program is operating as intended and in alignment with the MOU."

Hmmm. Could there be a connection between the above and another TaxBlog article, "Budget Blues for Tax Administration", detailing the continual decreases in the IRS's annual budgets?

Posted by: Gerald E Scorse | Feb 13, 2020 6:46:06 AM

Yet another "public private partnership" that handed crony capitalism incentives for service like O.J. had to put on that glove :(

Great to see not only this investigation but better buzz about affordable DIY, fillable-form, software, professional, and volunteer-assisted options like VITA lately.

But still lower income communities are getting misled into outrageously expensive and unnecessary preparation and refund loan packages by unscrupulous tax prep businesses - draining hundreds of dollars of the earned income credits we other hardworking taxpayers meant as a hand up! Churches and community groups can help spread the word (and share the IRS's videos and announcements): tax filing isn't that hard, you have options, and well-trained neighbors may even help you for FREE!

Extra credit: one might use the embeddable calculations in PDFs or automated software to generate them along with the IRS's own instructions to make an entirely open-source tax prep system (maybe paper filing only) :)

Posted by: Anand Desai | Feb 12, 2020 5:59:03 AM