Accounting
IRS noncommittal on future expansion of Direct File free tax prep system
The Internal Revenue Service declined to commit to expanding its Direct File free tax preparation program nationwide in response to a report from the Government Accountability Office, as the program comes under threat from Republican lawmakers who want to shut it down.
The
However, the program has attracted the opposition of Republican lawmakers and the commercial tax prep software industry. Last week, a group of 29 GOP members of Congress sent a
IRS commissioner Danny Werfel has been a major proponent of the Direct File effort, but Trump has already named a
The GAO report found the IRS is already behind schedule with recruiting and training customer service agents to help taxpayers use it in the 24 states where Direct File is slated to be available next tax season, due in part to insufficient coordination among various IRS offices.
The IRS limits participation in the Direct File program to taxpayers who live in certain states, facilitating coordination between federal and state tax filing. However, the GAO found the IRS could face challenges in reaching agreements with all 50 states, raising equity concerns for taxpayers who are unable to access Direct File due to where they live.
Last tax season, during pilot testing, the IRS accepted 140,803 Direct File returns in the 12 states where it was available, helping taxpayers with lower incomes fulfill their tax filing obligations. Taxpayers reported that Direct File was an easier tax preparation method than they had previously used, according to the report, and that factor contributed to the IRS’s decision to make Direct File a “permanent” option.
The IRS is planning to expand the scope of taxpayers who can use Direct File in 2025 by adding support for the premium tax credit for health insurance coverage under the Affordable Care Act, along with other tax provisions, and by allowing residents of the additional 12 states to use the federal Direct File system.
The report also looked at the online tax filing systems used by some foreign tax authorities, including Australia, Belgium, Estonia, France, Ireland and New Zealand, as well as the U.S. territory of Puerto Rico, and found they prepopulate their taxpayers’ tax returns with information already on file, such as wages reported by employers. The IRS started offering limited prepopulation in April 2024 during the pilot phase of testing Direct File. IRS officials told the GAO they are considering additional prepopulation of taxpayer data but are still in the early stages of planning. Identifying additional data for prepopulation in Direct File and developing a plan for testing its accuracy could enable the IRS to reduce taxpayer burden, the GAO noted.
The GAO made four recommendations in the report to the IRS, including improving coordination among relevant offices to ensure the recruitment of customer support employees, opening Direct File to all eligible taxpayers in the future, and identifying additional data that could be prepopulated in Direct File and testing its accuracy.
The IRS agreed with three of the GAO’s recommendations, but neither agreed nor disagreed with its recommendation to continue coordinating with state revenue agencies to expand access to Direct File and, as necessary, take steps to ensure the availability of the federal Direct File program to eligible taxpayers in all 50 states.
“We acknowledge GAO’s interest in seeing Direct File offered nationwide with expanded eligibility for taxpayers with more complex tax situations, and your recognition of the challenges we continue to explore in the expansion of Direct File,” wrote IRS deputy commissioner Douglas O’Donnell in response to the report. “The complex and nuanced nature of our nation’s tax laws require careful thought and consideration before support for any additional tax provisions can be added to Direct File to ensure nothing compromises its accuracy or usability for taxpayers.”
Easing restrictions, sharpening personal attention and clarifying denials are among the aims of
The programs focus on “fast track settlement,” which allows IRS Appeals to mediate disputes between a taxpayer and the IRS while the case is still within the jurisdiction of the examination function, and post-appeals mediation, in which a mediator is introduced to help foster a settlement between Appeals and the taxpayer.
The IRS has been revitalizing existing ADR programs as part of transformation efforts of the agency’s new strategic plan, said Elizabeth Askey, chief of the IRS Independent Office of Appeals.
“By increasing awareness, changing and revitalizing existing programs and piloting new approaches, we hope to make our ADR programs, such as fast-track settlement and post-appeals mediation, more attractive and accessible for all eligible parties,” said Michael Baillif, director of Appeals’ ADR Program Management Office.
Among other improvements, the pilots:
- Align the Large Business and International, Small Business and Self-Employed and Tax Exempt and Government Entities divisions in offering FTS issue by issue. Previously, if a taxpayer had one issue ineligible for FTS, the entire case was ineligible.
- Provide that requests to participate in FTS and PAM will not be denied without the approval of a first-line executive.
- Clarify that taxpayers receive an explanation when requests for FTS or PAM are denied.
Another pilot, Last Chance FTS, is a limited scope SB/SE pilot in which Appeals will call taxpayers or their representatives after a protest is filed in response to a 30-day or equivalent letter to inform taxpayers about the potential application of FTS. This pilot will not impact eligibility for FTS but will simply test the awareness of taxpayers regarding the availability of FTS.
A final pilot removes the limitation that participation in FTS would preclude eligibility for PAM.
The traditional appeals process remains available for all taxpayers.
Inquiries can be addressed to the ADR Program Management Office at
The Internal Revenue Service has updated and added new guidance for taxpayers claiming the Energy Efficient Home Improvement Credit and the Residential Clean Energy Property Credit.
The updated
New sections have been added on how long a taxpayer has to claim the tax credits, guidance for condominium and co-op owners, whether taxpayers who did not previously claim the credit can file an amended return to claim it, and a series of questions on qualified manufacturers and product identification numbers. Other material has been added on how to claim the credits, what kind of records a taxpayer has to keep for claiming the credit, and for how long, and whether taxpayers can include financing costs such as interest payments in determining the amount of the credit.
The IRS states that “financing costs such as interest, as well as other miscellaneous costs such as origination fees and the cost of an extended warranty, are not eligible expenditures for purposes of the credit.”
deeply unpopular despite growth and jobs
Citigroup picks high-yield stocks to play China as tariffs loom
Joe Biden wound up serving Donald Trump
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Economics6 days agoAlafe Wakili is A Pioneer in African Media and Communications
-
Leaders1 week agoHow to Feature your business success on this page
-
Personal Finance1 week agoCalifornia wildfire relief: Where to give
-
Economics1 week agoFriday’s jobs report may give mixed view of labor market. What to expect
-
Economics1 week agoInnovations in Green Computing and Energy Efficient Devices
-
Accounting1 week agoIRS, Treasury finalize rules for clean energy investments in low-income communities and Indian land
-
Accounting1 week agoInventory Management For Financial Accuracy and Operational Success
-
Personal Finance1 week agoMissing quarterly tax payment could trigger ‘unexpected penalties’