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Grow Your Business Finances

IRS Reneges on Noncompete Promise to Tax Companies

image for GlobalStock / Getty Images
GlobalStock / Getty Images
  • The newly announced agreement between the IRS and Free File, Inc. was described as a way to "bring more clarity for taxpayers choosing to use free online software" this year.
  • The move stands in stark contrast to long-running legislation, including the Taxpayer First Act that was passed in April, that kept the government out of major tax companies' way.
  • Under the agreement, the IRS is also trying to curtail practices that major companies use to hide their free tax filing options.

With a new tax season upon us, the IRS closed out 2019 with a major announcement that could not only make things easier for taxpayers searching for free tax filing options but also could potentially alter the online tax software industry in a major way.

On Monday, the IRS unveiled sweeping changes to an agreement with the Free File Alliance (FFA) – an industry coalition that worked to keep the government agency from creating its own free filing program by assuring that the tax software industry would offer free tax filing options to low- and middle-income Americans.

IRS Commissioner Chuck Rettig said the new agreement was born from a need to make things simpler for all taxpayers, stating that it was "part of a larger effort by the IRS to help taxpayers meet their tax obligations."

This agreement "continues to show the partnership we enjoy with the Free File partners and the commitment we both share in helping taxpayers since the program's creation 18 years ago," he said. "The improved process will make Free File stronger and give taxpayers another reason to consider this valuable software option."

Since as recently as last April, the U.S. government has held up its end of its deal with the tax preparation industry. For years, legislation like the Taxpayer First Act included wording that kept the IRS from making its own free tax filing service.

This agreement was a stark contrast to the more than 30 countries around the world that offer their taxpayers free filing, with those countries' respective tax agencies often handling the tax-filing process themselves. Since such a system would effectively put the likes of Intuit out of business, tax companies lobbied lawmakers for years to make sure the U.S. government didn't follow suit.

While free tax filing services for taxpayers making less than $69,000 a year have been available, recent reporting by ProPublica revealed that Intuit's free TurboTax options were harder to find than its paid versions, often leaving people with little recourse than to pay for the service. The companies often did this by hiding their free tax filing options from major search engines like Google. In the case of TurboTax, the company even hid its free version on a separate site. As a result, the company is currently facing lawsuits from multiple state attorneys general.

While the new agreement doesn't expressly list the ProPublica report as a major impetus behind the change, it expressly states that Free File Alliance members "will not exclude their Free File landing page from an organic internet search." The agreement also required companies to make sure that "a link on their sites is available to return taxpayers to the IRS Free File website at the earliest feasible point in the preparation process if they do not qualify for the member's Free File offer."

In a blog post on the company's website, Intuit representatives said the company "strongly supports these changes." The company said it will work with the IRS "to lead implementation of these new measures as quickly as possible."

For Rettig, the changes were a necessary action to help make things easier for American taxpayers.

"These steps will help further protect taxpayers and make important improvements to the program," Rettig said. "The IRS is committed to improving the Free File program and providing a great option for taxpayers to consider when preparing their taxes."

In addition to the fact that the IRS is now able to offer its own free tax filing solution, the new agreement also requires companies to provide additional information on the customers that file through the Free File program.

In order to do that, companies will be required to conduct surveys of those customers to gauge how satisfied they are with the program. Survey results will be sent to the IRS on a quarterly basis.

Additionally, companies will be required to provide a full count of all free federal tax returns filed. According to Intuit, for example, roughly 11 million people filed free tax returns with their TurboTax Free Edition software, while 1.2 million used the Free File method.

With that type of data being more readily available every quarter, Rettig said the IRS hopes it will be better suited to work with the FFA to understand how the process is working for the average American taxpayer.

"The IRS and FFI will also continue to work together to identify and explore ways to better help low- to moderate-income taxpayers and to pursue meaningful opportunities to enhance taxpayer awareness and use of the Free File Program beyond the 2020 filing season," Rettig added.

Andrew Martins

I am a former newspaper editor who has transitioned to strictly cover the business world for business.com and Business News Daily. I am a four-time New Jersey Press Award winner and prior to joining my current team, I was the editor of six weekly newspapers that covered multiple counties in the state.