Report: Free File Tax Prep Program is Working

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Posted by Alex Hendrie on Tuesday, October 22nd, 2019, 2:41 PM PERMALINK

Despite the claims of the Left, the Free File tax preparation program is working as a solution to tax complexity for millions of Americans. This finding is based on a recent report conducted by the non-profit MITRE Corporation for the IRS.

The report found that the original goals of Free File have been met:

“The program objective of providing the venue for free tax filing for 70 percent of the population has been met. The e-filing objective has been met.”

Free File has offered this tax preparation option at a fraction of what it would cost the government to provide: 

“The [IRS] partnership with the [Free File] Alliance has allowed the IRS to fulfill a would-be-costly obligation at a fraction of the expenses….the program also increased the proportion of e-filings resulting in further cost savings to the IRS as electronic returns are far cheaper to process than paper forms.”

Free File was originally created 15 years ago as a public-private partnership between the IRS and tax preparation companies. Since its inception, the program has provided 70 percent of taxpayers (those with Adjusted Gross Income of below $66,000) with access to free online tax preparation software.

Throughout its history, Free File has been used by 53 million Americans and has resulted in $1.6 billion in savings. The average AGI of taxpayers using Free File is $23,247, so the benefits largely go toward lower income Americans.

Criticism of Free File Misses the Mark 

Despite this success, the Left has repeatedly claimed the program isn’t working. Critics point to the relatively low usage rate among eligible taxpayers as supposed proof that Free File isn’t working. However, this argument misses the mark. 

While only 3 million returns are filed through the Free File, tens of millions of returns are filed for free through other means.

In fact, the combined number of taxpayers using a paid preparer, self-filing through other means, or receiving free tax preparation software through other means totals over 90 million taxpayers, not far from the 103 million taxpayers that MITRE says is eligible for Free File. For instance:

  • 3 million taxpayer returns are processed through the Volunteer Income Tax Assistance Program, a free program offered by brick and mortar preparers.

  • An estimated 17.7 million taxpayers received tax preparation software for free outside the Free File program.

  • 8.7 million taxpayers self-prepared their own taxes using paper forms.

  • Nearly 10 million taxpayers participated chose to self-prepare their taxes and receive their refund immediately through a Refund Anticipation Check (RAC) or Refund Anticipation Loan (RAL).

  • Of those eligible for Free File, another 51 million used a paid preparer.  

The Left Wants to End Free File So the Government Can Take Over Tax Preparation 

The MITRE study was commissioned in part because of intense criticism from many on the Left that Free File was not working.  However, this criticism is borne from the Left’s desire to have the government file taxes.

Case in point – every April 15, far-left politicians such as Congresswoman Alexandria Ocasio-Cortez (D-N.Y.), Senator Bernie Sanders (I-Vt), and Senator Elizabeth Warren (D-Mass) call for the government to take over tax filing.

To be clear – this would be a terrible idea.

MITRE has previously noted that having the IRS file taxes would not be cost-beneficial and would not keep pace with innovation in the private sector. Similarly, Obama IRS Chief John Koskinen has said in the past that the IRS does not have the capability or interest in creating a government tax preparation system.

Even if they did, it would represent a huge conflict of interest. Under this system, the IRS assesses your taxes and then tells you how much you owe. Naturally, this creates an incentive to overcharge or withhold information from taxpayers. At the very least, it would empower the IRS to collect even more personal information and create a new pathway for the agency to target taxpayers.

The proposal is also unpopular. According to data by the Computer & Communications Industry Association, 60 percent of taxpayers oppose government tax preparation including 45 percent that “strongly oppose.” Just 8 percent of taxpayers strongly support government tax preparation.

Free File Should Be Improved, Not Ended 

While the MITRE report concludes that Free File is working, it points out areas of possible improvement. This is the right approach.

Throughout the history of Free File, the agreement between the IRS and tax preparation companies has successfully been updated seven times, so there is clear precedent for improvements.

Moving forward, MITRE suggests several ways to improve the program including having the IRS take steps to better promote Free File, conducting studies to better understand taxpayer filing preferences, and taking steps to improve taxpayer experience while utilizing Free File.

These and other reforms should be considered to build on the success of the program.

The recent MITRE study confirms that Free File is working. Since it’s inception, the program has promoted electronic filing and has assisted low-income Americans with tax complexity.

Critics on the Left desperately want to end the program as a first step toward having the government file taxes. This would not solve tax complexity, would needlessly waste government resources, and would open the door for the IRS to target taxpayers in new ways. 

Photo Credit: Flickr

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