The IRS On the Verge of Changing the Way Americans File Their Taxes

The IRS could soon change the way that Americans file their taxes. 

The new Inflation Reduction Act, signed into law by President Joe Biden last week, provided $80 billion in funding for the agency. It includes $15 million to deliver a report on a free, government-run tax e-filing system that tax simplification advocates have long argued for. 

But reports note that the agency is on a tight deadline to deliver, with about a year to turn around the e-filing report. Most of the $80 billion for the IRS in the new law goes out over the next decade. 

For the e-filing system, the agency has to figure out how much an online filing system would cost, the design of the system, and how taxpayers would feel about using one. 

Tax experts say the system could take two basic forms: one more conservative in scope and one more far-reaching. 

The more conservative option would be a standardized government version of popular commercial software from companies like H&R Block, TaxACT, or Intuit. It prompts users to fill out a digital tax return. 

There has already been an IRS program that lets low-income Americans use a digital program, as well as other commercial products for free. However, the program performed poorly. A government report found previously that while 70 percent of taxpayers are eligible for the program, only three percent use it. 

In its agreement with commercial providers, the IRS signed a noncompete clause promising not to make its own free software tool. 

It’s not clear how a new free e-filing system would line up with the IRS’s agreement with private tax preparers, but it may simply be allowed to expire if the agency decides to move ahead with its own large-scale public filing system. 

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