Most Serious Problem: Free File

Substantial Free File Program Changes Are Necessary to Meet the Needs of Eligible Taxpayers 

To increase electronic filing (e-filing), the IRS partners with Free File, Inc. (FFI), a group of private-sector tax return preparation software providers, to offer free federal tax preparation software products accessible through IRS.gov to approximately 105 million eligible taxpayers. While the rate of e-filing has approached 90 percent for tax year 2018 individual returns, less than two percent (or about 2.5 million returns) were filed using Free File program software products. In addition, data on repeat usage suggests that taxpayers who use Free File have generally been dissatisfied with it. Among taxpayers who used Free File software in 2017, nearly half (47 percent) did not use Free File software again in 2018. Based on issues raised by ProPublica, an assessment of the program by MITRE Corporation, and previous concerns raised by the Taxpayer Advocate Service, the National Taxpayer Advocate believes that the current program is not promoting the best interests of taxpayers. FFI member companies are steering eligible taxpayers away from their Free File program software products and toward their commercial products. In addition, cross-marketing of fee-based services on Free File program software can confuse taxpayers and gives the impression of IRS endorsement. Moreover, the low usage rate of the program proves that the program is not meeting the needs and preferences of eligible taxpayers. Finally, the IRS does not perform routine quality testing of the Free File program software. 

The MITRE 2019 Free File Report argues that the reason for the low usage rate of the program is that many taxpayers prefer to use other return preparation methods. The National Taxpayer Advocate believes that poor usage is attributable to little guidance and software options available to taxpayers when using the Free File program, which results in taxpayers selecting Free File software that lacks capability to prepare their returns. Only four of the 11 FFI members offer services to taxpayers of all ages, and even these have restrictions based on the taxpayer’s state of residence, income, or eligibility for the Earned Income Tax Credit. Four other FFI members have age limitations that start before the age of 60, and only one FFI member provided Free File software in another language (Spanish). The National Taxpayer Advocate believes that the IRS should ensure that the agreement provides an easy, assessable Free File platform for taxpayers to protect their right to be informed, to quality service, and to a fair and just tax system. 

The National Taxpayer Advocate includes both administrative and legislative recommendations to address this Most Serious Problem.

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