The initiative aims to provide taxpayers with an accessible option to avoid paying tax preparation companies like Intuit and H&R Block for their services.
The IRS has announced plans to launch a pilot program next year that will enable a small group of individuals to electronically file their tax returns directly with the agency
The move comes as dozens of other countries already offer free tax-filing options to their citizens. However, the plan to put the Internal Revenue Service (IRS) in the tax preparation business is expected to face opposition from the industry, with Republicans expressing concerns that it could lead to a conflict of interest since the agency enforces tax laws. The details of the program are still being worked out, including whether participants will be able to file their state taxes as well.
The IRS’s previous online portal, set up in 2021 for monthly Child Tax Credit payments, received criticism for its usability. The agency is now seeking to revamp its operations with an $80 billion cash infusion awarded by Democrats last summer. The pilot program aims to identify and address any challenges and will not involve the IRS completing returns for individuals.
There are uncertainties regarding the program’s logistics, such as the number of participants, the selection process, and the accommodation of complex filings
The IRS has developed prototype software to anticipate potential issues. The Treasury Department will ultimately decide whether to expand the program into a fully-fledged direct file initiative, with the agency asserting that it has the authority and funding to implement it.
While private tax companies currently facilitate online tax filing, the IRS does not directly accept electronically submitted returns from the public, although individuals can file for free on paper. The Government Accountability Office and public polling indicate a demand for more free filing options, and the pilot program aims to gauge public enthusiasm.
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