Sen. Elizabeth Warren (D-Massachusetts) and Rep. Katie Porter (D-California) are calling out tax preparation companies for “record” lobbying efforts to thwart a new Biden administration plan to massively expand free tax filing across the U.S.
In letters sent to tax prep firms Free File Alliance, the American Coalition for Taxpayer Rights, Intuit and H&R Block, the lawmakers pointed out the companies’ long history of lobbying to kill broad-based free tax filing in order to pad their own profits. Meanwhile, as a report by the offices of Warren, Porter, and other lawmakers recently detailed, tax prep firms have also been freely sharing taxpayer data with Meta despite the sensitivity of such data.
The current system for free file was established two decades ago to allow a wide range of taxpayers to file their taxes for free — but, due in large part to tax firm lobbying, has “utterly failed,” the lawmakers wrote. Rather, the Internal Revenue Service (IRS) says that the average taxpayer spends eight hours and $140 on filing their taxes each year.
“Free File’s failure is not an accident,” Warren and Porter said. “Tax prep companies have used deceptive practices and outright lies to push consumers from Free File into paid programs, including deliberately suppressing Free File websites from search results and channeling taxpayers into in-house ‘freemium’ programs that charge for services that would be free under Free File.”
The Free File Alliance, a coalition of tax prep firms who participate in the IRS’s current free file program, say that 70 percent of taxpayers are eligible to use the service. But in 2022, only 2 percent of filers used the service, which the lawmakers say is “in large part because of deliberate sabotage by tax preparation companies intent on profiting off of taxpayers.”
Indeed, a 2019 investigation by ProPublica found that Intuit, which operates TurboTax, had been deliberately hiding its IRS-partnered free file program from Google and other search engine results. Later that year, ProPublica revealed that Intuit had been lobbying for at least two decades, waging a “sophisticated, sometimes covert war” to kill free filing.
Then in 2021, the company decided to opt out of the IRS program entirely, instead touting its own supposedly free products — advertisements that garnered a lawsuit from the Federal Trade Commission last year, who said that the company was misleading customers into thinking that they were eligible for TurboTax’s free filing when they weren’t.
Earlier this year, the Associated Press found that Intuit, H&R Block and groups like Americans for Tax Reform have reported spending $39.3 million on lobbying since 2006, which likely includes efforts to kill free filing.
Now, the IRS is working on a plan to vastly expand free filing and has created a pilot program that could be available as soon as next year. It could help bring the U.S. closer to what countries across Europe do: allow taxpayers to file taxes automatically for free, in a process that takes just minutes.
But tax prep firms have launched a sprawling campaign to weaken or kill this new program. The Free File Alliance and American Coalition for Taxpayer Rights, of which Intuit and H&R Block are members, retained lobbyists just days after reports of the IRS’s new pilot came out. Disclosures show that the lobbyists were hired in relation to tax preparation products and tax administration.
The lawmakers asked the firms to reveal how much revenue they’d made off of middle and lower income taxpayers and to detail the extent of their lobbying efforts in the past and over the current pilot program.
“The IRS’ creation of a free, government-run direct filing tool would benefit taxpayers and rein in the predatory and exploitative behavior of tax prep companies,” the lawmakers wrote. “Recent revelations about tax prep companies’ abusive tactics, including reckless data sharing and deceptive advertisements, illustrate why this tool is essential for taxpayers, and your organization and its members should not be allowed to undermine the IRS’ efforts to better serve taxpayers.”