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IRS sees steady growth in Direct File free tax program

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The Treasury Department reported increasing usage of the Internal Revenue Service’s free Direct File tax-filing system that they’ve been pilot testing in a dozen states this tax season.

“In the three weeks since IRS Direct File launched, we’ve seen steadily increasing interest from taxpayers in using this new free tool,” said a Treasury official in an email Friday afternoon. “In each week since Direct File launched, we’ve seen growth over the previous week. Sunday, March 31, was our best day ever for Direct File usage, until Monday, April 1, which far surpassed it — setting new records for visitors to Direct File, new users, and returns accepted. As more people hear about Direct File, more people are eager to use it to file their taxes.”

The IRS launched the Direct File program last month after weeks of internal testing among IRS employees in the 12 states where it’s available: Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming. The program only supports the standard deduction and doesn’t allow for itemized deductions. It’s also limited to certain types of income, such as W-2 income, unemployment compensation, Social Security benefits and interest of $1,500 or less, but not gig economy types of income that would be reported on a 1099.

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So far, according to the Treasury, taxpayers using Direct File have claimed more than $30 million in refunds and saved millions in estimated filing fees. California, Texas, Florida and New York have the highest number of accepted returns to date.

Since the launch of Direct File on March 12, taxpayers have used the live customer support available nearly 14,000 times, with average wait times for assistance consistently ranging between 10 and 20 seconds and less than a minute during peak use.

The Treasury and the IRS have also been surveying users of Direct File, and so far the response from taxpayers has been overwhelmingly strong, according to the Treasury.

“When given the opportunity, taxpayers want to tell the IRS about their experience with Direct File,” said the Treasury official. 

However, the tax software industry has not been pleased by the program, and some lawmakers in Congress have also been pushing back. 

“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,” said Intuit spokesperson Tania Mercado in an email last month. “Today 100% of Americans — regardless of their income level or tax complexity — can file their federal and state taxes completely free of charge. Whether people are simple filers like those eligible for IRS Direct File, or complex filers with gig work and investments that IRS Direct File excludes, there is a filing option available today so every American can easily and accurately file their taxes with confidence.” The TurboTax maker also posted a  Myth v. Fact document to set the record straight on tax preparation and some of the claims made against the company.

House Ways and Means Committee Chairman Jason Smith, R-Missouri, and around a dozen state attorneys general also challenged the program in February.

The American Coalition for Taxpayer Rights, a group of tax prep companies that has been lobbying against Direct File, pointed out Monday that the IRS and the Treasury have downgraded their goals for the program. They noted that an estimated 19 million Americans were supposed to be eligible for direct file, according to IRS Danny Commissioner Werfel, while around 200,000 to 400,000 was the initial goal for direct file submissions according to a Treasury spokesperson. Later 100,000 was a new goal for Direct File submissions given by the IRS in mid March, but approximately 50,000 Americans have used Direct File so far as of April 3.

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Acting IRS commissioner reportedly replaced

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Gary Shapley, who was named only days ago as the acting commissioner of the Internal Revenue Service, is reportedly being replaced by Deputy Treasury Secretary Michael Faulkender amid a power struggle between Treasury Secretary Scott Bessent and Elon Musk.

The New York Times reported that Bessent was outraged that Shapley was named to head the IRS without his knowledge or approval and complained to President Trump about it. Shapley was installed as acting commissioner on Tuesday, only to be ousted on Friday. He first gained prominence as an IRS Criminal Investigation special agent and whistleblower who testified in 2023 before the House Oversight Committee that then-President Joe Biden’s son Hunter received preferential treatment during a tax-evasion investigation, and he and another special agent had been removed from the investigation after complaining to their supervisors in 2022. He was promoted last month to senior advisor to Bessent and made deputy chief of IRS Criminal Investigation. Shapley is expected to remain now as a senior official at IRS Criminal Investigation, according to the Wall Street Journal. The IRS and the Treasury Department press offices did not immediately respond to requests for comment.

Faulkender was confirmed last month as deputy secretary at the Treasury Department and formerly worked during the first Trump administration at the Treasury on the Paycheck Protection Program before leaving to teach finance at the University of Maryland.

Faulkender will be the fifth head of the IRS this year. Former IRS commissioner Danny Werfel departed in January, on Inauguration Day, after Trump announced in December he planned to name former Congressman Billy Long, R-Missouri, as the next IRS commissioner, even though Werfel’s term wasn’t scheduled to end until November 2027. The Senate has not yet scheduled a confirmation hearing for Long, amid questions from Senate Democrats about his work promoting the Employee Retention Credit and so-called “tribal tax credits.” The job of acting commissioner has since been filled by Douglas O’Donnell, who was deputy commissioner under Werfel. However, O’Donnell abruptly retired as the IRS came under pressure to lay off thousands of employees and share access to confidential taxpayer data. He was replaced by IRS chief operating officer Melanie Krause, who resigned last week after coming under similar pressure to provide taxpayer data to immigration authorities and employees of the Musk-led U.S. DOGE Service. 

Krause had planned to depart later this month under the deferred resignation program at the IRS, under which approximately 22,000 IRS employees have accepted the voluntary buyout offers. But Musk reportedly pushed to have Shapley installed on Tuesday, according to the Times, and he remained working in the commissioner’s office as recently as Friday morning. Meanwhile, plans are underway for further reductions in the IRS workforce of up to 40%, according to the Federal News Network, taking the IRS from approximately 102,000 employees at the beginning of the year to around 60,000 to 70,000 employees.

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Accounting

On the move: EY names San Antonio office MP

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Carr, Riggs & Ingram appoints CFO and chief legal officer; TSCPA hosts accounting bootcamp; and more news from across the profession.

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Accounting

Tech news: Certinia announces spring release

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Certinia announces spring release; Intuit acquires tech and experts from fintech Deserve; Paystand launches feature to navigate tariffs; and other accounting tech news and updates.

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