Cross References

  • IR-2023-103, May 16, 2023

The Internal Revenue Service has submitted a report to Congress evaluating a Direct File option for taxpayers and is taking steps to begin a pilot project for the 2024 filing season following a directive from the Treasury Department.

The report to Congress, required by the Inflation Reduction Act, evaluated the feasibility of providing taxpayers with the option of a free, voluntary, IRS-run electronic filing system, commonly referred to as “Direct File.”

The report finds that many taxpayers are interested in using a free IRS-provided tool to prepare and file taxes, and that the agency is technically capable of delivering a Direct File program. It also concludes that effective execution of a Direct File program would require sustained budget investment and careful management of the potential program’s operational complexity.

The report focuses on three areas: taxpayer opinions, cost and feasibility. The report also includes an analysis conducted by an independent third party, as required by the statute. The report also lays out the potential benefits and challenges associated with the IRS implementing a Direct File program.

“The IRS is committed to delivering significantly improved services by providing taxpayers with tools, information and assistance to make it easier to comply with their tax filing obligations. Direct File—used by numerous tax jurisdictions around the world—has long been discussed as an option for improving the customer experience for taxpayers in the U.S.,” said IRS Commissioner Danny Werfel. “The IRS review looked at the potential operational and administrative requirements of such a system. Ultimately, the results show there is taxpayer interest in an optional Direct File program and such a program is technically feasible. Any path forward should start with a limited pilot to assess operational factors described in this study.”

As directed by Treasury, the IRS will move to gather further information through the implementation of a scaled Direct File pilot in the 2024 filing season to further assess customer support and technology needs and the ability to overcome the potential operational challenges identified in the report. Additional details on the Direct File pilot will be available in coming months.

The IRS report relied on information from the agency’s Taxpayer Experience Survey (TES), which surveyed thousands of taxpayers on these topics. The IRS also reviewed and incorporated findings from an independently conducted survey by the MITRE Corporation.

The IRS supplemented data from these taxpayer surveys with user research and usability testing that was conducted using a basic internal prototype to better understand firsthand taxpayer perspectives.

The IRS report also includes a separate, independent analysis done by New America and Professor Ariel Jurow Kleiman on the Direct File concept.

Author’s Comment Direct File is not the same as IRS Free File. IRS Free File is a public-private partnership between the IRS and private tax preparation software companies who offer their tax preparation software for free to certain taxpayers through irs.gov. Taxpayers eligible to use this service are generally taxpayers with AGI of $73,000 or less. Taxpayers with AGI above $73,000 are given the option to use free fillable IRS forms (in PDF format) to file their taxes online, equivalent to a paper filed 1040 return.

Direct File is a government-operated electronic free-file tax return system (tax software created and run directly by the IRS) that would be available for all. Supporters claim a government free-file tax return system would reflect good government and well serve taxpayers. Critics voice skepticism about the IRS taking on the dual roles of both tax collector and tax preparer, arguing that it could create a power imbalance between taxpayers and the government.

A spokesperson for the IRS said that a key goal is to “look for ways to make filing taxes as easy as possible.” Many tax professionals believe that the way to make filing taxes as easy as possible is for Congress to stop creating complicated tax laws, eliminate tax loopholes, and simplify how taxes are calculated.