This Is How We Finally Kill Turbotax

Video produced and edited by Ian McKenna

Article by Donald Shaw and David Moore, Sludge

The Internal Revenue Service is taking a long-awaited step toward making the process of filing taxes less costly—and less of a time drain—for many Americans. In May, the IRS announced that it would be launching a pilot program of a free online service, known as “Direct File,” that will allow people to prepare and file their tax returns electronically directly with the agency starting in the 2024 tax season.

Around 70% of taxpayers are already eligible to file their taxes for free with the IRS Free File program, but because companies like H&R Block and Intuit have taken great lengths to advertise their supposedly “free” products, only about 2% of those eligible end up taking advantage of the service each year. The Direct File program is meant by its champions in Congress including Sen. Elizabeth Warren (D-Mass.) and Rep. Katie Porter (D-Calif.) to simplify the tax process while also ensuring that more eligible people get the tax credits and refunds for which they qualify.  

The Direct File pilot comes after Congress included legislation in the Inflation Reduction Act (IRA), signed into law last year, that required the IRS to study the feasibility of such a program. In May, the IRS published the study, which found that 72% of Americans said they would be interested in using the system and simultaneously announced that, as directed by the Treasury Department, it would move to implement the pilot program. 

Direct filing with the IRS is a step that the tax prep industry, led by giants Intuit and H&R Block, has been fighting with a vast influence campaign for decades, a period during which it has spent tens of millions of dollars on lobbying and millions more in political donations. H&R Block and Intuit, which owns TurboTax, make up more than 90% of the tax prep market share in the U.S.

Already this year, tax prep companies have been spending millions of dollars on lobbying as they oppose the government moving toward a direct-filing option. To add muscle behind their push, they’re being joined in lobbying on Direct File by conservative advocacy groups with deep ties to Republican lawmakers—and one with funding from Intuit. 

Having an IRS direct filing option stands to dramatically slash the cost and headache of filing taxes, which for the average taxpayer takes 13 hours and $250 every year, according to Treasury Department figures. Overall, Americans will spend a whopping $14.4 billion on tax prep this year, the market research firm IBISWorld estimates. Direct filing could “potentially save taxpayers billions of dollars annually” by cutting the costs associated with private firms, Laurel Blatchford, the Treasury’s chief implementation officer for the Inflation Reduction Act, told Reuters.

The scale of the pilot program is to be determined, and Direct File’s opponents have been hitting out at the program as “wholly redundant” with existing tax prep services, among other objections. If used by 25 million taxpayers, the cost of the program would run to $200 million, according to the IRS report—a fraction of the amount that people who are eligible for free filing fork over to tax prep companies each year. A back-of-the-envelope calculation by ProPublica journalists found that the tax prep industry made around $1 billion in extra revenue annually from customers who qualified for the free filing option. 

Intuit’s lobbying spending has been trending higher in recent years and it spent more in the first three months of this year, $920,000, than in any prior first quarter. Intuit’s lobbying filings say the company has lobbied Congress and the Treasury Department on the issues “Support Tax Simplification and Voluntary Compliance,” “Support IRS Taxpayer Assistance Programs,” and “Implementation of P.L. 117-169,” which refers to the IRA. So far this year, Intuit has spent more than $1.7 million on federal lobbying. 

Intuit’s lobbying is supplemented by political donations from its top executives. Intuit CEO Sasan Goodarzi made his largest ever donation, $100,000, in March 2022 to the Senate Leadership Fund, a Mitch McConnell-aligned super PAC. Goodarzi donated $36,500 to both the DSCC and NRCC in 2022, in addition to dozens of smaller donations in recent cycles to influential politicians including Senate Majority Leader Chuck Schumer (D-N.Y.), former House Majority Leader Steny Hoyer (D-Md.), and Senate Finance Committee Ranking Member Mike Crapo (R-Idaho). Intuit Founder and Chairman of the Executive Committee Scott Cook donated $36,500 to the NRSC in March 2022. 

H&R Block has spent more than $1.5 million lobbying the federal government in the first half of the year, on par with how much it has typically spent in recent years. The company has spent more than $14.7 million on federal lobbying since 2018. 

A recent report commissioned by Senate Democrats found that H&R Block and other tax prep companies have been sharing their customers’ personal information with tech companies Meta and Google without properly disclosing that they were doing so.

In the past two election cycles, the PACs of Intuit and H&R Block have spent slightly more than $1 million on political contributions combined. 

Both H&R Block and Intuit are members of the trade group American Coalition for Taxpayer Rights (ACTR), which for over a decade has lobbied on tax prep issues, opposed “return-free” filing with arguments about taxpayer privacy, and in the press thrown cold water on Direct File as “unnecessary.” The group’s 14 member companies also include the tax software subsidiary of accounting firm Wolters Kluwer, commercial bank First Republic, prepaid debit card company Netspend, and software companies like TaxSlayer that offer free filing services in partnership with the IRS in addition to their professional products. Quarterly spending on lobbying by ACTR has been ticking up since the start of last year, with $150,000 spent so far this year. It recently hired a batch of new lobbyists who previously worked for Congress, including former Hoyer staffer David Ransom and former Senate Finance Committee chief tax counsel Mark E. Warren. The lobby group reported raising more than $1 million in revenue in each of 2020 and 2021, according to tax documents.

On its website, ACTR features a Fox News op-ed penned by Sen.Crapo opposing Direct File as “The last thing the IRS should be doing right now.” Last cycle, when Crapo was up for re-election, his campaign received donations from the PACs of both H&R Block and Intuit, and he has also received donations from Intuit co-founder Scott Cook.  

Americans for Tax Reform, a conservative advocacy group that seeks to lower taxes, led a coalition letter in March that asked members of Congress to oppose the creation of a government-run tax preparation service. The letter argued that the government has a conflict of interest in determining how much taxpayers owe because it relies on taxpayers for its funding. The letter was signed by American for Tax Reform President Grover Norquist, as well as by the leaders of 30 other conservative organizations. Norquist’s group reported lobbying Congress on “Issues related to the creation of an IRS direct e-file program” in both its Q1 and Q2 federal lobbying disclosures. Its total lobbying expenditures during the first half of the year amounted to $100,000.

Another conservative group joining the lobbying fray against the direct filing program is the National Taxpayers Union (NTU), which dates itself back to Reagan-era tax code overhauls and whose board includes Republican flat-tax proponent Steve Forbes, as well as several executives with lobbying firms and government affairs consultants. Last year, NTU lobbied on the issue of IRS funding, and in the fourth quarter began mentioning lobbying on the issue of “Creation of IRS tax filing portal/”return-free” system,” continuing this year. The group banked $10 million in revenue over its two most recent tax years available. 

While NTU does not disclose its funders, political disclosures from Intuit show the tax prep company began paying membership dues to NTU in 2019-2020, giving $25,000, and has continued to pay thousands of dollars to the group.

If Direct File is supported and offered to more Americans, the IRS could in years ahead assist taxpayers by pre-populating portions of tax returns for them to approve, as dozens of other wealthy countries do, further slashing the cost and hassle of filing returns. Last year, researchers with the Treasury Department found that between 42% and 48% of all individual tax returns could be accurately prepared by the IRS with information submitted by employers and other sources.