IRS Failure as Tax Filing Numbers Revealed

An IRS sign on the agency’s headquarters in Washington DC. Direct File was launched in March this year to offer free tax filing for Americans in 12 states.

This tax filing season, the Internal Revenue Service (IRS) launched one of its most ambitious projects to date, Direct File, which offered some taxpayers the option to file their returns directly with the government agency at absolutely no cost. But the Direct File pilot scheme has not been a runaway success in its inaugural year, according to preliminary participation numbers.

The IRS launched its Direct File pilot in 12 U.S. states in March 2024. Those living in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming could submit simple tax returns direct with the government agency, eliminating the need to use a paid-for third party provider.

For the tax season just past, Direct File “generated more than 60,000 tax returns after opening widely in mid-March,” the IRS said in a statement on April 15—the deadline for filing federal tax returns this year. Of an estimated 19 million eligible users, it means only 0.3 percent of the pool of eligible taxpayers used the new system. Newsweek contacted the IRS for comment on this figure on Tuesday via email.

The low participation rates have provided fuel for groups and companies opposed to the program. “The IRS Direct File program remains costly, confusing and completely unnecessary. Only in Washington is a take-up rate of .005—100,000 taxpayers out of 19 million eligible this year used Direct File—hailed as a ‘huge success,'” a representative for the American Coalition for Taxpayer Rights, a grouping of tax preparation and software companies, told Newsweek.

“The chairman [Commissioner Danny Werfel] said the IRS hasn’t yet made a decision about the future of Direct File. The American taxpayer would be best served if the IRS used its resources to promote the existing IRS Free File Program and the many other available free filing programs.”

Commercial tax companies also lambasted the pilot at the time of its launch. A representative for TurboTax, one of the most commonly used tax software systems in the U.S., told Newsweek: ” Direct File is not free tax preparation, but rather a thinly veiled scheme where billions of taxpayer dollars will be unnecessarily used to pay for something already completely free of charge today.

“Direct File is a solution in search of a non-existent problem, and that solution will unnecessarily cost taxpayers billions of dollars for something completely free of charge today—free to taxpayers, and free to the government.”

Whether Direct File continues into the 2025 tax season remains to be seen—and could depend on the outcome of the presidential election in November. While President Joe Biden is very unlikely to undo the work done by the IRS—funded by his Inflation Reduction Act—to get the pilot off the ground, both state and national Republicans have been critical.

In January, a group of GOP attorneys-general demanded the IRS halt the launch of Direct File because it was not approved by Congress, branding it “unnecessary and unconstitutional.”

“Congress has never granted the Department of the Treasury authority to create a Direct File program. And for good reason: the American taxpayers do not want to invite the proverbial fox into the hen house,” the letter, written by Montana Attorney General Austin Knudsen, read.

Still, others see merit in the free tax filing system. “The introduction of the IRS Direct File pilot program represents a significant opportunity to dismantle economic inequality in our tax system,” wrote civil rights attorney and public policy expert Portia Allen-Kyle for Inequality.org. “In the fight against corporate greed, we stand firm in our resolve. It’s time to hold these giants accountable, to empower the working class, and to build a fairer, more just system for all.”

Despite underwhelming uptake numbers for Direct File, the number of users opting for IRS’ preexisting free tax return options rose this season. The IRS said its partnership with “Free File partners offering free private-sector software via IRS.gov saw growth with more than 2 million tax returns filed, an increase of 11.2 percent or more than 200,000 more Free File returns than 2023.”

“We still have much more work to do, both to finish the 2024 tax season as well as put in place continued improvements made possible by Inflation Reduction Act funding,” Werfel said in a press release on April 15. “But this filing season marks another important chapter where we’ve improved service for taxpayers, continuing an accelerating trend in the story of transforming the IRS.”

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