Business

Warren, Brown press IRS on study reviewing Free File program

Sens. Elizabeth Warren (D-Mass.) and Sherrod Brown (D-Ohio) are pressing the IRS about a study the agency commissioned to review its Free File program, raising concerns that the report viewed the program too favorably.

“Despite Free File’s serious and well-documented failures, the report makes the extraordinary suggestion that Free File has been a success,” the senators wrote in a letter this week to IRS Commissioner Charles Rettig, first reported on by The Hill. 

{mosads}The Free File program is a partnership between the IRS and tax-preparation companies to have those companies offer free tax filing software to low- and middle-income taxpayers. The program has been at the center of controversy this year, following a series of articles published by the investigative news outlet ProPublica that found the tax-prep companies have taken steps to hide their options under the program.

Warren, a leading Democratic presidential candidate, has been a critic of the program for years. She’s repeatedly introduced legislation to require the IRS to create its own free, online tax-filing software. Earlier this year, she took the lead on sending letters to the IRS and the Federal Trade Commission, calling them to investigate tax-prep companies participating in Free File.

In their letter Friday, Warren and Brown, the top Democrat on the Senate Banking Committee, expressed concerns that the IRS is ignoring “the serious flaws and conflicts of interest in the program.”

“The IRS’s continued refusal to police the bad faith efforts by participants in the Free File program to scam customers, which have now cumulatively cost millions of taxpayers millions of dollars, demonstrates that the only way for the agency to fulfill its commitment to free tax filing services for low- and moderate-income filers is to provide that service directly,” the senators wrote.

Warren and Brown highlighted additional stories that ProPublica released last month, including one that reported that the IRS renewed its agreement with the tax-prep companies in the Free File Alliance in 2018 shortly before the IRS Advisory Council was set to issue a report criticizing Free File.

The senators also said that a report the IRS commissioned to review Free File, conducted by the MITRE Corporation and released last month, was “irredeemably flawed.”

Warren and Brown noted that the report confirmed some of the frequent criticisms of Free File, including that several tax-prep companies have taken steps to hide their options under the program from the public. But the senators argued that the report frames problems with the program in a way that’s too friendly to the tax-prep industry.

The senators criticized the report for saying that critiques of inadequate IRS oversight over Free File relate to a lack of public awareness about how public-private partnerships work. This aspect of the report incorrectly suggests that the structure of the Free File program “somehow absolves or excuses the program from public accountability,” Warren and Brown wrote.

The senators also criticized the report for not taking a position about whether tax-prep companies that hid their Free File options from web search results had engaged in deceptive business practices. MITRE said in the report that making such a determination would be outside its legal purview and that there is a need for the IRS to take a position on the practice and update its memorandum of understanding with the companies accordingly.

Additionally, the senators argued that the report “goes to nearly heroic efforts to whitewash” the fact that only a small percentage of eligible taxpayers use the program. The report says that many taxpayers who were technically eligible for free file but chose to use another filing option, such as a paid preparer or volunteer income tax assistance sites, have taken themselves out of the pool of candidates for Free File.

Rettig told Warren in a letter last month that the IRS is planning to move forward with several of the report’s recommendations and is identifying items for negotiations with the tax-prep companies.

“There are many reasons eligible taxpayers may not take advantage of the program,” Rettig said. “We are exploring what research will inform our understanding of taxpayer behaviors and how we can improve the customer awareness and satisfaction with the program.”

Rettig said in the letter that the IRS chose MITRE to conduct the assessment because they’re well-positioned to act without any conflicts of interest. He said MITRE, at its sole discretion, made some changes to the report after the Free File Alliance raised concerns about a factual inaccuracy and potential unintended legal implications.

Tim Hugo, executive director of the tax-prep companies’ alliance, said when the MITRE report came out that it was “a diligent, highly detailed endeavor that shows that the partnership is working well,” and he said that the companies work with the IRS to improve the program.

Warren and Brown asked the IRS to provide them with information about the circumstances under which MITRE was selected to review the Free File program, the circumstances under which MITRE conducted the review and what report recommendations the IRS plans to implement. Additionally, the senators asked the IRS about a line in MITRE’s report that stated that IRS leadership’s focus for Free File “is less about target number of participants, and more about maximizing awareness to ensure people recognize it is a choice.”

The senators also asked the IRS if it was planning to implement an advisory council’s recommendation that every tax-prep company in the Free File Alliance be audited; why the agency signed a new memorandum of understanding with the alliance in 2018, before the previous one expired; and how the IRS is developing negotiation items for the alliance.