Some companies steered low-income taxpayers away from free file options: Report

A new report on the IRS’ Free File program shows some companies steered taxpayers away from free options they may have been eligible to use, though the program overall was found to be beneficial.

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Individuals with incomes of $66,000 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.

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.

Other explanations for low engagement were that half of the eligible taxpayers used a paid preparer, while others received refund anticipation checks, filed paper returns or visited volunteer tax assistance sites.

Overall, about 30 million do-it-yourself filers were eligible to use the program, and about 9 percent of them did.

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A growing number of lawmakers, including New York Rep. Alexandria Ocasio-Cortez and Massachusetts Democrat Sen. Elizabeth Warren, have voiced support for a system where the IRS is able to play a larger role in the tax preparation process.

However, the report noted that the benefits of the Free File alliance are substantial because the IRS “would sustain prohibitive costs in funding such a program itself, with added risk of competing with a highly competitive private sector.”

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Critics, however, allege the report sides too heavily on the side of the industry.

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