ATR Applauds House Republican Bill to Cut $2 Billion from IRS, Blocks Direct File

House Republicans advanced legislation this week that would further cut the IRS enforcement budget and prevent the agency from attempting to launch its own government-run tax preparation service. 

Republican appropriators overcame Democrat opposition to the financial services and general government funding bill in a subcommittee vote to advance an 18% cut – roughly a $2 billion cut – to the IRS’ budget for FY2025. The bill also requires the IRS to receive approval from Congress before instituting its Direct File program. 

The IRS’ Direct File program would create a system with a fundamental conflict of interest where the IRS becomes tax preparer, tax collector, and tax auditor. An organization that calculates taxes owed cannot later return to taxpayers with an audit. Direct File is also a redundant waste of taxpayer money as existing free programs such as Free File can already accommodate most filers. 

Along with income documents such as paychecks, bank statements, and digital asset transactions, Direct File users must also submit identifying information such as Social Security Number, bank account information, and address. 

The IRS has an abysmal record with protecting the data of taxpayers. Just five months ago, IRS contractor Charles Littlejohn was sentenced to 5 years in prison for leaking the private information of 70,000 taxpayers. The uploading of private information for Direct File constitutes a serious data breach risk, especially when the IRS has already proven to be incompetent in safeguarding tax return information.  

Moreover, the IRS does not possess the authorization from Congress to create a tax filing service. The Inflation Reduction Act only authorized $15 million for the IRS to study Direct File, it did not provide the IRS with funding or authority to create a Direct File system, as noted by the Attorneys General from 13 states (read the letter here.) 

But the Biden administration and the IRS did it anyway. Not only that, BUT the IRS was dishonest about it from the start. 

IRS chief Daniel Werfel had repeatedly asserted that the IRS was merely doing a study as authorized by the Inflation Reduction Act. In reality, the IRS was secretly working the entire time to build out a Direct File system, as revealed in a Washington Post scoop on May 15, 2023. 

The Washington Post article notes the IRS and White House had already assembled a large team and had already written the software and built the system. 

Direct File is yet another example of the IRS overstepping its bounds and disregarding the authority of Congress. It is non-negotiable that the IRS must have congressional approval to implement a tax filing service.  

Americans for Tax Reform applauds this Republican-led congressional action to ensure that a power-hungry IRS is not both the filer and the auditor of sensitive tax information.