IRS may now Compete with TurboTax, Others

On January 2, the Internal Revenue Service (IRS) entered a new agreement with the tax-software industry that forbids “companies from hiding their free options from search engines and allows the IRS to offer its own tax-return software in competition against TurboTax.” This is a clear reversal of the IRS’s prior promise not to compete against the tax-software industry. The companies are also required to make sure that eligible consumers know about free-filing options and to use consistent naming, “IRS Free File program delivered by (Free File Company name or product name).”

TurboTax and H&R Block previously hid their free tax services from search engines; however, both seem to have since removed the code that hid them and changed marketing practices. A few states are investigating these practices. The companies are members of Free File, which signed a new agreement with the IRS to be “more tax-payer friendly while strengthening consumer protections in key areas.” 

Previously, the tax-software industry operated with the understanding that the IRS would not enter the market with its own products or services. A previous memorandum stated, “[I]n recognition of this commitment [to offer free filing services to low-income taxpayers], the federal government has pledged to not enter the tax return software and e-file services marketplace.”  However, the addendum prohibited tax preparation companies from “engaging in any practice that would cause the member’s Free File landing Page to be excluded from an organic Internet search.” This would let the IRS create its own free tax-filing service.

In a blog post, Intuit stated it “strongly supports these changes to the Free File program and associated Free File offerings because they increase the focus on the taxpayer experience. We applaud the IRS and FFA, who worked together to bring about these important reforms. We believe a strong Free File program benefits taxpayers, empowering eligible individuals and families to manage their own finances through the preparation and filing of their taxes at no cost to them or the government.” However, Intuit and other companies previously lobbied against it in the hopes that new legislation would prevent the IRS from creating its own service.

“These steps will help further protect taxpayers and make important improvements to the program,” IRS Commissioner Chuck Rettig said. “The IRS is committed to improving the Free File program and providing a great option for taxpayers to consider when preparing their taxes.” The IRS did not comment if it plans on offering its own free tax-filing service or platform.