By David Lawder
WASHINGTON (Reuters) -The Internal Revenue Service on Tuesday said it would launch a free, government-provided direct tax filing option next year, which could lead to the full-scale launch of an IRS filing system that would compete with private tax preparers.
The IRS said in an exploratory report to Congress on the issue that a majority of American taxpayers have indicated in surveys and in other research that they are interested in using a free government-provided tool to electronically file their tax returns.
The agency estimated that a new direct filing system would cost between $64.3 million and $248.9 million a year to operate, depending on the complexity of returns accepted and the number of taxpayers using the system.
The size, scope and complexity of the IRS pilot program, to be available in the 2024 tax filing season, has yet to be determined, IRS Commissioner Danny Werfel told reporters, adding that U.S. Treasury Secretary Janet Yellen directed IRS to launch the pilot after reviewing the report.
The study was mandated by the climate-focused Inflation Reduction Act, which was backed by only Democratic lawmakers, and provided $80 billion over 10 years for the IRS to beef up enforcement, modernize its technology, improve customer service and rebuild its workforce.
Plans for a free-filing system have been criticized by Republicans in Congress as redundant because of free filing options for simple returns provided by private firms, including H&R Block and TurboTax software maker Intuit Inc. They have also questioned whether it would have an inherent bias against taxpayers as the IRS would be acting as both tax preparer and collector.
Laurel Blatchford, the Treasury's chief implementation officer for the Inflation Reduction Act, said a free direct filing option could cost the IRS less than $10 per tax return filed, compared with about $40 now paid by taxpayers for simple returns with private firms. This could "potentially save taxpayers billions of dollars annually," she said.
Werfel noted that all filing options would continue, including free e-file options from private firms and non-profit tax advocacy services, paid filing by tax preparers and free paper filing to the IRS.
Funding for a full scale IRS direct file system has not been determined, but would need to be determined by the Treasury and Congress, Werfel said, but could come from the $80 billion in new funding designated for systems modernization.
(Reporting by David Lawder; Editing by Paul Simao and Aurora Ellis)