It has always felt like an extra kick in the gut having to pay to help the IRS root around in your pockets. That means the IRS preparing a “free” direct file program might at first glance sound like a good deal. But taxpayers should be far more wary of letting the fox into the henhouse.
The IRS recently announced that it plans to launch a pilot version of a direct tax filing program sometime next year. While it would not be a full-scale tax preparation service as offered by TurboTax or H&R Block, it would represent a concerning initial foray into that space by the IRS.
Why is a free service concerning? Because for all its length and complexity, many aspects of the tax code remain open to interpretation, especially by an IRS prone to land on the most narrow and restrictive interpretations possible. Private tax preparation services have an incentive to find all the deductions and credits a taxpayer could reasonably claim. The IRS has no such incentive — in fact, every signal it has received from Congress as of late has pointed it in the exact opposite direction.
Under the Inflation Reduction Act (IRA), the IRS received $15 million to explore a direct filing program and a total of about $80 billion in new funding. More than half of this amount was directed towards increased enforcement, even as the IRS struggled through yet another rough tax filing season characterized by delays and poor taxpayer services.
The message from Congress could not have been more clear: Congress’s top priority for the IRS was to squeeze “tax cheats” for more revenue. That’s an orientation the IRS has proven more than happy to adopt.
After all, the IRS has demonstrated repeatedly that its default view towards tax disputes is that they are a taxpayer’s attempt at tax evasion, not just a disagreement. Just recently, the IRS has been trying to erode institutional checks intended to prevent overzealous agents from imposing unfair fines and penalties.
Should the IRS expand this toehold to a foray into the tax preparation industry, it would be the tax equivalent of sending defendants to trial without a lawyer. Why should taxpayers trust an agency with such a hostile and combative attitude towards them to have their best interests at heart?
Unfortunately, should the IRS progress to offering a “free” (read: taxpayer-funded) tax preparation service, it would be easy for unsuspecting taxpayers to get caught in a trap. A “free” service would be more appealing to the average taxpayer than private, paid services, even if those private services could save them money in the long run. Taxpayers would have no idea that the IRS was not helping them claim deductions or credits they had a right to claim.
And even if the IRS was a model of trustworthiness, the aforementioned issues with taxpayer services remain as a reason to doubt the IRS’s ability to reliably run a system like this. Not only has the IRS still not managed to update its master data file or figured out how to support broad-based secure document sharing, but significant concerns remain about the IRS’s ability to safeguard taxpayer privacy. The IRS should focus on plugging the leaks it already has before trying to launch a whole new boat.
Taxpayers should not be fooled by promises of “free” tax filing services. The IRS has a lot of work to do to prove itself worthy of the responsibilities it already has before it demands new ones.
Andrew Wilford is a senior policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax and fiscal policy research and education at all levels of government.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.