IRS to get rid of Direct File program that offered free tax prep service

The IRS has told Congress it will scrap the controversial Direct File program it created during the Biden administration, doing away with a government-run free-filing alternative to paid services such as TurboTax.

The tax agency, in an Oct. 2 report to Congress that lawmakers released Thursday, said the program had relatively weak participation while placing burdens on the IRS.

“The IRS will suspend Direct File pilot program due to the program’s high costs, limited participation, and the agency’s need to focus resources on other priorities,” the agency told Capitol Hill.

It said it can improve other programs, such as the existing Free File option, to deliver many of the benefits of Direct File.

Direct File had become an unlikely but major political dividing line. Democrats generally cheered the optional program as a welcome tool for those who didn’t want to pay for a tax-preparation service. Republicans criticized it as government overreach.

Congress had called for the IRS to study the idea of a free government-controlled tax preparation application to match paid services offered by the likes of TurboTax and H&R Block. The Biden administration took that as an invitation to roll out a full program, which it deployed last year for residents in a dozen states and expanded to 25 states this year.

Critics said deploying the program was a violation of the law, and the two sides sparred over whether the initial use numbers were enough to justify keeping the program going.

The IRS said that of 146 million tax returns submitted for the tax year 2024, less than half of one percent used Direct File. That’s partly because so many states weren’t covered, but the agency said it was also because the tool didn’t match up to many users’ needs.

Given the $41 million budget to operate the program that year, it worked out to $138 per return — and that was likely an underestimate because not all of the program’s costs were captured in that budget.

“It wasn’t just unlawful for Democrats to expand the authority of the IRS without congressional authorization, it turns out that taxpayers simply didn’t want to use the costly and ineffective government-run Direct File tax program,” said Rep. Jason Smith, Missouri Republican and chairman of the House Ways and Means Committee.

He said the Biden administration cooked the books to justify the program in the first place, contracting with a “leftist” organization to provide the initial feasibility study. He said the Biden team “conveniently” ignored data from another study finding that many Americans balked at the idea of trusting the IRS to calculate their taxes.

He said the idea had long been a dream of liberal senators such as Elizabeth Warren and Bernard Sanders and would “give the IRS control over both the filing and auditing of tax returns.”

Sen. Ron Wyden, the top Democrat on the Senate Finance Committee, saw it differently.

“The Trump administration operates like a laser-guided weapon aimed at any useful public service that saves Americans time and money,” he said. “The only thing Trump accomplishes by doing this is stealing from working-class taxpayers to pad the profits of giant, rent-seeking tax software companies.”

The Washington Times has reached out to the IRS for this story.