The Internal Revenue Service’s Direct File free tax prep program is attracting interest this tax season, according to a new report, but lack of familiarity and budget cuts at the IRS may doom it for next tax season.

For the report, released Wednesday by the Tax Policy Center at the Urban Institute and the Brookings Institution, researchers examined December 2024 data from Urban’s Wellbeing and Basic Needs Survey. They found that among those who filed a tax return last year, 73% reported they would be somewhat or very interested in using Direct File if they had access to it. 

Interest in Direct File was high both among those who had paid to file their taxes (69%) and those who filed their taxes for free (85%) in 2024. But around two-thirds of tax filers (68%) also agreed with the statement that they do not know enough about Direct File to feel comfortable using it, and 88 percent agreed with the statement that their most-recent filing method met their needs.

U.S. taxpayers who expressed interest in Direct File prioritize ease of use and cost when choosing how to file their tax returns. Those not interested in using Direct File were more likely to prioritize accuracy, including a reduced chance of being audited, followed by ease of use.

The Direct File program may be on the chopping block, however. The Elon Musk-led Department of Government Efficiency reportedly eliminated the 90 employees of the so-called 18F digital services team that helped develop the Direct File program, according to Reuters. A separate report released earlier this week by the Treasury Inspector General for Tax Administration found that IRS claims regarding the Direct File pilot program last tax season omitted more than a third of costs. TIGTA found that the $24.6 million the IRS reported as the cost to develop and operate the Direct File Pilot didn’t include all the costs incurred by the government. The IRS’s reported totals did not include an estimated $8.8 million for costs incurred by the Office of Management and Budget for employees detailed to the IRS to help develop and pilot Direct File and costs incurred to create or leverage existing accounts through the IRS’s Credential Service Provider. The IRS also did not include all the costs of IRS employees from other functions who collaborated to support Direct File. 

During the pilot, 423,450 taxpayers created or signed in to a Direct File account. However, only about one-third of these taxpayers (140,803 taxpayers) submitted a tax return that was accepted by the system through Direct File. The pilot program was available in 12 states last year and expanded to 25 this year. An estimated 30 million taxpayers across those 25 states can use Direct File in the ongoing 2025 tax filing season.

The Internal Revenue Service’s Criminal Investigation unit has launched 2,039 tax and money laundering cases related to COVID fraud over the past five years, with attempted fraud in these cases totaling $10 billion. 

As of Feb. 28, 1,028 people have been indicted for their alleged COVID-related crimes, and 569 individuals have been sentenced to an average of 31 months in federal prison in the fivce years since passage of the CARES Act. IRS-CI said Wednesday it has obtained a 97.4% conviction rate in prosecuted COVID fraud cases. 

The COVID fraud cases included a wide range of criminal activity, including fraudulently obtained loans, credits and payments meant for American workers, families and small businesses.

“It’s been five years since Congress enacted the CARES Act, and our special agents have used their financial acumen to root out thousands of instances of fraud, waste and abuse tied to CARES Act programs,” said IRS-CI Chief Guy Ficco in a statement Wednesday. “In the past year alone, our special agents initiated 380 new investigations into COVID fraud. CARES Act fraudsters have no regard for their fellow Americans. In many cases they stole funds and spent them on luxury items ranging from trips to cars – all while businesses who should have received these funds – were floundering due to unprecedented economic hardship.”

As part of its COVID fraud investigations, IRS-CI has particularly focused on investigating instances of Employee Retention Credit fraud. As of Feb. 28, IRS-CI has initiated 545 investigations, involving more than $5.6 billion in ERC fraud in tax years, 2020, 2021, 2022 and 2023. Seventy-five of the 545 investigations have resulted in federal charges. Thus far, 38 defendants in those cases have been convicted, with 18 defendants sentenced to an average of 21 months in prison. However, that focus may change as President Trump has nominated former Rep. Billy Long, R-Missouri, as the next IRS commissioner of the IRS, and Long helped promote the Employee Retention Credit after leaving Congress for a firm called Lifetime Advisors.

The Treasury Department formally published an interim final rule Wednesday limiting the scope of the Corporate Transparency Act’s beneficial ownership reporting requirement to foreign companies.

The Treasury Department’s Financial Crimes Enforcement Network issued the interim final rule, removing the requirement for U.S. businesses to report on their true ownership to FinCEN. 

The interim final rule takes effect immediately, but FinCEN is still accepting comments and intends to finalize the rule this year.

“It is important to rein in burdensome regulations to the benefit of hard-working American taxpayers and small businesses,” said Treasury Secretary Scott Bessent in a statement Wednesday. “As we continue to releverage the private sector and deleverage the government, we are reviewing all regulations to ensure they are fit-for-purpose, in furtherance of our ambitious economic growth agenda on behalf of the American people.”

The move reflects an announcement earlier this month in which FinCEN said it would no longer enforce the CTA, nor enforce any penalties or fines associated with beneficial ownership reporting under the existing regulatory deadlines. However, FinCEN left open the possibility of enforcing it against foreign companies, saying it planned to issue a proposed rulemaking that would narrow the scope of the rule to foreign reporting companies only. 

In the interim final rule, FinCEN revised the definition of “reporting company” in its implementing regulations to mean only those entities that are formed under the law of a foreign country and that have registered to do business in any U.S. state or tribal jurisdiction by the filing of a document with a secretary of state or similar office (formerly known as “foreign reporting companies”). FinCEN is also exempting entities previously known as “domestic reporting companies” from BOI reporting requirements.

Under the interim final rule, all entities created in the U.S. — including those previously known as domestic reporting companies — and their beneficial owners will be exempt from the requirement to report beneficial ownership information to FinCEN. Foreign entities that meet the new definition of a “reporting company” and don’t qualify for an exemption from the reporting requirements must report their BOI to FinCEN under new deadlines (see below). These foreign entities, however, will not be required to report any U.S. persons as beneficial owners, and U.S. persons won’t be required to report BOI with respect to any such entity for which they are a beneficial owner.

Upon the publication of the interim final rule, the following deadlines will apply for foreign entities that are reporting companies:

• Reporting companies registered to do business in the U.S. before the date of publication of the interim final rule must file BOI reports no later than 30 days from that date.
• Reporting companies registered to do business in the U.S. on or after the date of publication of the IFR have 30 calendar days to file an initial BOI report after receiving notice that their registration is effective.

The CTA was signed into law as part of the National Defense Authorization Act of 2021 and requires individuals with an ownership interest in a limited liability company to disclose personal data to FinCEN as a way to deter illicit activity such as money laundering, tax fraud, drug trafficking and terrorism financing by anonymous shell companies.

“Requiring businesses to disclose their true beneficial owners under the Corporate Transparency Act will help law enforcement by reducing criminals’ ability to hide their tracks via shell corporations,” said Eric Brown, president of the National Narcotic Officers’ Associations’ Coalition, in a statement. “Following the money is a proven strategy in investigations that involve organized criminal activity, especially fentanyl and other illicit drug trafficking. Law enforcement resources are stretched thin, and the Corporate Transparency Act — if fully implemented — would enable narcotic enforcement officers to be more effective in protecting the public from drug trafficking.”