IRS Direct File program may be cut by GOP next year, despite expansion plans

The Internal Revenue Service’s plans to expand the Direct File free tax program nationwide next year could meet an early demise if Republicans gain control of Congress and the White House.

The Direct File system was only offered in 12 states this past tax season as part of a pilot program, but IRS Commissioner Danny Werfel expressed the hope it could be offered in every state. “I truly believe that the vision that the IRS has for the future of tax administration is a nonpartisan one,” he said in answer to a question at a press conference last week. “Our focus is to build world-class customer service for taxpayers, meet the generation of taxpayers that’s emerging where they are, and how they want to interact with the IRS and meet their tax obligations. I think there’s an overwhelming interest, and it’s fully nonpartisan, that the process should be easier, less stressful, less burdensome.”

However, House Republicans proposed to eliminate the program as part of their budget proposal Tuesday. 

“Congress did not authorize the IRS to create a Direct File program because the American people neither want nor asked for it,” said House Ways and Means Committee Chairman Jason Smith, R-Missouri, in a statement Tuesday. “Only at the IRS would authorization for a study, using cherry-picked data from a liberal group, get twisted into a pilot program for 140,000 taxpayers, which has now turned into a bizarre justification for creating a permanent nationwide government tax program. The IRS cannot even justify its own cost estimates for the program, according to a Treasury Inspector General report last year, which found that the agency had no documentation to support the underlying data, analysis, or assumptions about the cost to taxpayers. The IRS has proven itself time and again to be a poor steward of taxpayer information. This latest attempt to circumvent Congress and establish a new tax program only serves to further undermine the fraying trust between the agency and the public. It is clear that making this program permanent and appointing the IRS as tax preparer, filer, and auditor, instead of delivering for taxpayers, has been Democrats’ plan all along.”

Senate Democrats seized on the Republican budget proposal. “If not for the fact that the Republican party belongs to Donald Trump, a known tax cheat and convicted felon, their commitment to helping rich people cheat on their taxes would be a lot more shocking,” said Senate Finance Committee chairman Ron Wyden, D-Oregon, in a statement. “That’s the centerpiece of the Republican budget plan for the IRS, which has been a disaster for years and is now getting even worse. If Republicans have the opportunity, they will deprive law-abiding taxpayers of the choice to file their taxes for free with the IRS’s new Direct File program by shutting it down before it expands nationwide. In short, the winners in this plan are rich tax cheats like Donald Trump, and the losers are typical Americans who earn a wage, follow the law, and want to file their tax returns every spring without getting ripped off by big tax software companies.”

Treasury Secretary Janet Yellen defended the IRS budget during testimony Tuesday about the Treasury Department budget during a Senate subcommittee hearing. “First, the budget requests $12.3 billion in discretionary resources for the Internal Revenue Service,” she said. “Thanks to [Inflation Reduction Act] funding and annual appropriations, we have already seen unprecedented improvements. This filing season, we made it easier for taxpayers to file their taxes and get the credits they’re owed, including by providing 11,000 additional hours of in-person assistance. 140,000 taxpayers saved millions in tax preparation fees through the pilot of Direct File, an easy and free way to file taxes online directly with the IRS. We have also increased enforcement to make sure wealthy taxpayers and large corporations pay their fair share, collecting millions in unpaid tax debt from millionaires. We need resources so that we can continue saving the American people time and money and helping reduce the deficit. The IRS is inviting all states to participate in Direct File as soon as next filing season and intends to expand it to support all of the most common tax situations over the next few years. And we will keep working to close the tax gap driven by wealthier Americans, which costs us over $600 billion a year.”