IRS updates rules to protect free filing options for low-income taxpayers

The IRS has updated its agreement with third-party tax preparers following reports that some of them steered low-income taxpayers away from the free option they may have been eligible to use.

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On Monday, the tax agency released an addendum to its memorandum of understanding with tax software companies to include language that prohibits companies from obscuring free file landing pages from an “organic internet search.”

Further, the updated document has struck a sentence from the original memorandum (implemented in 2018) that prevents the IRS from entering the tax return software and e-file services marketplace.

"These steps will help further protect taxpayers and make important improvements to the program," IRS Commissioner Chuck Rettig said in a statement. "The IRS is committed to improving the Free File program and providing a great option for taxpayers to consider when preparing their taxes."

The set of recommendations are set to be implemented as soon as possible.

SOME COMPANIES STEERED LOW-INCOME TAXPAYERS AWAY FROM FREE FILE OPTIONS: REPORT 

IRS WILL FAIL TO COLLECT TRILLIONS OF DOLLARS OVER THE NEXT DECADE, RESEARCHERS ESTIMATE

Individuals with incomes of $69,000 or less are eligible to file for free through the IRS’ Free File program – a partnership with third-party preparers. While 70 percent of Americans are eligible to use it, only 2.5 percent did so in fiscal 2018 (fewer than 3 million people of 104 eligible) – which some have attributed to the companies’ deliberate efforts to hide the products.

A group of senators asked the IRS to bring in an outside contractor, MITRE, to review the Free File program in May amid criticisms that industry partners were engaging in deceptive practices and not acting in the best interest of taxpayers.

Those claims were first reported by ProPublica and pertained specifically to Intuit – the parent company of TurboTax – and H&R Block.

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Turns out the claims appear to be true. The report showed five of the 12 members of the program used a coding device to keep their Free File landing pages out of organic searches. However, engagement still increased at four of five of those partners.

ProPublica reported earlier this month that a group of state attorneys general opened an investigation into Intuit over the claims. Intuit maintains the claims are without merit and has vowed to defend itself.

Cumulatively, the Free File program has resulted in more than 53 million free returns e-filed and an estimated $1.6 billion in savings for taxpayers.

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