The biggest tax preparation companies have suppressed free filing options for years, Sophia Kovatch reports.
(Mike Mozart, Flickr, CC BY 2.0)
By Sophia Kovatch
ProPublica
Under the Free File agreement, Americans who make less than $73,000 per year should be able to file their taxes for free with one of the tax preparation companies that partners with the IRS. But this program has been historically underutilized, with just 4 percent of eligible Americans filing for free in 2021.
The story of the Free File program is long and twisting, and it can seem more like a fight against free tax filing than a fight for it. One of the biggest players is Intuit, the maker of TurboTax, one of the largest tax preparation software companies in the country.
ProPublica has reported on Intuit and the Free File program since 2013. Here’s what we’ve found.
The Truth About TurboTax
In 2002, Intuit, H&R Block and other tax prep companies signed a deal with the IRS to provide free tax filing services to millions of Americans. In return, the IRS agreed it would not create its own tax filing system that could compete with the tax prep companies.
A government-run tax filing system, often known as return-free filing, is already a reality in many countries around the world. With a return-free filing system, the government fills out the tax forms with the information it already has, and taxpayers simply have to review the forms for accuracy. This is not the case in the U.S.
Switching to such a system would devastate tax prep company profits. That’s why Intuit and other members of the industry spent millions through the years lobbying to preserve the Free File agreement, particularly the part that restricts the IRS from creating its own free filing system.
Internal Revenue Service building in Washington, D.C., 2008. (Shashi Bellamkonda, CC BY 2.0, Wikimedia Commons)
That’s not all Intuit did to limit the scope of Free File. Intuit purposefully suppressed its own Free File product. It added website code to block its Free File page from showing up in search engines and used manipulative marketing patterns to trick customers into paying for TurboTax even when they qualified for Free File. It later removed the code.
Internal documents previously obtained by ProPublica show these strategies were intentional on the part of Intuit and H&R Block.
In previous statements, Intuit and H&R Block maintained that they support and encourage free tax filing options through Free File and other avenues within their businesses.
ProPublica’s Reporting Impact
Federal Trade Commission in Washington, D.C. (Victoria Pickering, Flickr, CC BY-NC-ND 2.0)
As ProPublica reported on Intuit and the Free File program, government officials took note.
When ProPublica pointed out that codifying the existing Free File agreement into law would permanently bar the IRS from creating its own free filing system, the bill got new scrutiny in Congress and the restriction on an IRS-created filing system was scrapped.
Senior IRS leadership and a New York state regulator began investigating Intuit and the Free File program. The Federal Trade Commission started investigating Intuit too, looking into the company’s allegedly deceptive marketing practices.
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Ultimately, Intuit was found to have tricked millions of Americans into paying to file their taxes when they should have been able to do so for free. The company reached a $141 million settlement in May 2022 in a case led by New York Attorney General Letitia James and covering all 50 states and the District of Columbia. (Intuit did not admit any wrongdoing in the settlement.) More than 4 million people are expected to receive money as part of the settlement. It’s not clear when the payments will be made.
The Current State of Free File
Following ProPublica’s reporting in 2019, the IRS reformed the Free File program. It barred companies from using deceptive practices to deter taxpayers from using Free File and removed the prohibition on the IRS creating its own tax filing system.
Intuit left the Free File program in October 2021, citing a desire to innovate beyond what the agreement would allow. In March 2022, during the first tax season in which TurboTax did not participate in the Free File program, the FTC sued Intuit over deceptive ads for its so-called free edition. Intuit disputed the FTC’s arguments but agreed to pull the ads in question for the remainder of tax season.
After both Intuit and H&R Block left the Free File program, the future of the program was unclear. It’s still difficult to find truly free tax filing options. The IRS created a tool to help you find this year’s Free File options.
More changes may be on the horizon for Free File. In August 2022, the IRS received a mandate to look into creating a public filing system, with $15 million allocated to the study.
Sophia Kovatch is audience editor, SEO, at ProPublica.
This article is from ProPublica and republished under Creative Commons License (CC BY-NC-ND 3.0).
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The IRS does actually already have a free-file system of sorts, namely electronic access to their tax forms on their website, which can be filled out then and there and filed. This system does not walk you through completing the return, as the commercial programs do. However, if your taxes are not too complicated this doesn’t matter.
It is hard to find this option because the IRS website does nothing to promote it. When you go to that website you see notices about a “free file” page where you are presented with the “free” commercial options, but are not informed about this other option.
The “free” commercial options are not as free as one might think. Most people do not bother reading the license agreements, but if you look at the agreements, they are mostly horrible. As I recall, TurboTax was the worst. Two years ago I did use the “free” software. The only license agreement that looked “normal” was for EZ File, so I used that system. However, last year, when I was planning to use EZ File again, they wanted me to accept advertising. I think there was a procedure to opt out of the ads but I couldn’t get it to work. I went back to the IRS website and eventually figured out you could fill out the tax forms there, which is what I did.
I am so glad you ran this article. I have been very upset with the free file system lately, and where Intuit goes, the others follow. I have been mostly retired for a decade. Welfare gives me $250 a month as rent so my disabled son can live in my home. It used to count as miscellaneous income and I could use the free file system. A couple of years ago, they started forcing me to file as a landlord. Even then it isn’t difficult because the amount is so small, but then I have to pay $60 to file (because of that one form) and another $15 to file my state tax return. Meanwhile, people I know with significant investments can file for free because they are retired and they don’t have to fill out any special forms for investments.
More of what makes America great! Absolutely every possible interaction between human beings in this country must be “privatized” to the maximum extent possible and must guarantee the bonanza of profit taking by big corporations–even taxpaying!
This is simply Another in a Long Series of intended or unintended government malfeasance. My op-iniion is someone shoulod have caught this early on in it’s infancy. It’s called doing due diligence.
Look, do we or do we not believe the US tax system has some very serious issues? If your opinion is that we don’t this is not for you.
The IRS is ignored by most everyone but the rich.
If the country is to have a legitimate taxing policy it needs to be simple, not a lawyer driven mass of unending legal statutes that lawyers write for their clients for money.
We don’t have that currently.
Am I one bit surprised by this article? Hell no I’d have to be a fool! Wake up kiddies, stop staring into the bright lights. The have-nots in this country are being victimized by the system largely out of lack of representation when government services are taken over by the private corporations. This is a move that will and is driving them into total exclusion.
The government is off it’s rails.
Thanks CN
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