The IRS has made a habit of late of doing whatever it wants, with little regard for legal or constitutional constraints. From its lackadaisical attitude toward its failure to properly safeguard thousands of tax returns to repeated Supreme Court rebukes to half-baked plans to snoop on taxpayers’ bank accounts, the agency is developing a reputation as a loose cannon. The latest in what is becoming an increasingly long list of questionable moves by the IRS is the agency’s unilateral decision to launch a “direct file” program.
Back in the summer of 2022, Congress passed the poorly named Inflation Reduction Act, a bill that focused far more on boosting the IRS’s enforcement budget than inflation. Tucked away in the bill was $15 million for the IRS to study the potential feasibility of an IRS-run direct tax filing program.
To most people, a “study” would comprise a report analyzing the agency’s ability to put together and run such a program. The IRS, however, decided to interpret its directive rather liberally, deciding instead to put together a pilot program that 140,000 taxpayers then used to file their taxes this past season.
But while that certainly stretched the definition of “study,” the IRS could at least argue at that point that it was simply attempting to provide a more concrete demonstration of the program’s feasibility. That is, until this May, when IRS Commissioner Danny Werfel announced that the IRS would, in fact, be making the program permanent.
Americans for Tax Reform has documented how, over the past year, Werfel’s statements have misled Congress and the public about the IRS’s intentions in this area. Up until the last moment, Werfel insisted that no decision had been made about whether to move forward with the direct file program, even as the IRS continued to build the infrastructure to do so.
To be clear, Congress’ directive regarding direct file has not changed in the intervening months. The IRS’s decision to create a permanent IRS-run filing portal was made without any legislative direction — and certainly without any congressional appropriation to do so. Instead, the IRS has simply redirected $114 million from every funding area that involves improving the taxpayer experience.
Of course, it’s a problem that the IRS is making this decision without congressional authorization. But it’s also a problem that the IRS is doing it at all. After all, it is naïve to imagine that taxpayers can trust the IRS to help them claim every refund and credit that they are entitled to.
That’s not to say the IRS will necessarily hide clear and obvious ways that taxpayers can reduce their liability. Sometimes, taxpayers’ returns are fairly straightforward. But the tax code is often complicated, and it is almost certain that the IRS will always take the most narrow interpretation of what liability-reducing provisions taxpayers are eligible for — as it routinely does in tax court disputes.
While paying for a third-party tax preparer to file your taxes never feels good, that third party at least has every incentive to fight on taxpayers’ behalf for every penny they’re owed. By controlling the entire filing process, the IRS would be in a position to make its interpretations of tax provisions all a taxpayer would ever know.
The IRS would argue that this represents just another alternative for taxpayers. But the average taxpayer will likely choose the “free” (read: taxpayer-funded) option over the “paid” option. Taxpayers filing through the IRS would likely miss out on credits and deductions without ever knowing that they had a case for claiming them, and so would have no idea that the “free” option led to them paying more taxes than they should have.
It’s also worth noting that this would likely harm average taxpayers far more than wealthier taxpayers, who would likely prefer to stick with a tax preparer anyway. The IRS has consistently shown that it prefers to audit low-income taxpayers whose returns are simpler and who lack the time and resources to fight the IRS in court. That pattern would likely continue with IRS-run tax filing.
The IRS had done nothing before the Inflation Reduction Act to prove that it deserved to be entrusted with more resources. Its unilateral decision to insinuate itself into the tax preparation industry proves that giving the mouse an $80 billion cookie has only made it want more.
Andrew Wilford is the Director of the Interstate Commerce Initiative with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.
