IRS Names Advisors on Possible Government-run Direct Filing System for Taxpayers

The IRS could be inching closer to providing government-run, electronic tax filing infrastructure for ordinary taxpayers.

Capitol Hill directed the IRS to look into the cost and feasibility of a government-owned direct e-filing system in the 2022 Inflation Reduction Act – legislation that also included $80 billion in 10-year funding for the tax agency for enforcement, to upgrade tech and enhance its workforce.

The IRS announced on Wednesday that it is on track to deliver the report to lawmakers in May, as required by the law, and has also picked nonprofit New America and tax expert of Loyal Law School, Ariel Jurow-Kleiman, to help write the report.

The law directs the IRS to report on the cost of developing and running a direct e-file tax system, as well as taxpayer opinions on such a system and the opinion of a third-party on the feasibility, cost, and IRS capacity to deliver such a system. 

Supporters of government-run direct filing are hoping for an alternative to the program the IRS has run with tax filing vendors since the early 2000s under which commercial tax prep companies make some tax return prep software free to most Americans in exchange for the IRS not competing for that business. 

The IRS said last year in comments on a watchdog report that it doesn't think that a public, free-filing option would "significantly improve the taxpayer experience."

That program, called Free File, is vastly underutilized. Industry heavyweights like Intuit and H&R Block have also left in recent years. 

New America is a think tank that includes programs focused on public interest technology, digital governance and more. It isn't new to tax work. Its New Practice Lab and United Way Worldwide launched an effort to find ways to improve the IRS Volunteer Income Tax Assistance Program last year, for example. 

Jurow-Kleiman is a tax expert and associate professor of law at Loyola Marymount University's School of Law whose research focuses on the impact of tax policies on low-income and vulnerable households. 

Nonprofit Code for America offers design prototype for e-file system

Also on Wednesday, the civic tech nonprofit Code for America released a design prototype meant to offer a long-term vision for what an IRS-run direct e-file tool could look like. The nonprofit is interested in the mechanics of tax filing as a way to increase the number of individuals getting the benefits offered through the tax code, a goal also evident in its simplified tax filing tool meant to help low-income Americans get the advance child tax credit and earned income tax credit.

"With the opportunity presented by the Inflation Reduction Act, it's a real possibility to close the tax benefits gap and just make tax filing less of a pain for everybody," David Newville, Code For America's senior program director for their tax benefits work, told FCW. "You create a filing process that's free, easy, accessible and simple. You can close the tax gap, get people these benefits … and you can make it easier on the IRS, too."