Waste of the Day: “Free” Tax Returns Cost Too Much

Topline: The IRS estimated in December 2024 that its new Direct File tax return system would cost the government $61.1 million for an estimated 2.3 million users, or about $27 per person. But the pilot program ended up costing about $238 per person who used the system to file their taxes, according to a report from the Treasury Inspector General For Tax Administration.

Direct File tax system not properly priced

Key facts: Joe Biden’s Inflation Reduction Act directed the IRS to create the Direct File system as a free alternative to private tax software like TurboTax.

The inspector general first reported in October 2023 that the IRS had no documentation to show how it came up with its cost estimate for Direct File. Now, the new audit found that the IRS didn’t include the payroll costs of some employees working on the Direct File system, among other expenses.

Only 423,450 taxpayers created a Direct File account during the pilot program, and just one third of them actually filed their tax return using the system. As a result the program cost far less than expected, $33.4 million, but far more per user. Surveys showed that some taxpayers thought creating an account was too complicated, while others wanted to keep using old software they were already familiar with, according to the Treasury IG report.

The Associated Press reported in April that the Trump administration plans to eliminate the Direct File program, though some lawmakers including Elizabeth Warren are fighting to keep it intact. 

The Direct File program is a waste of taxpayer money because free filing programs already exist, Republican lawmakers argued.

One such service is Free File, a partnership between the IRS and tax-prep companies, CBS noted.

Why did they do it?

Search all federal, state and local government salaries and vendor spending with the AI search bot, Benjamin, at OpenTheBooks.com. 

Critical quote: “A clear, demonstrable need for IRS Direct File appears to be missing,” Tony Scott, the former Federal Chief Information Officer in Barack Obama’s administration, wrote in 2023. “Neither the IRS nor members of Congress who champion this IRS-sponsored approach have been able to characterize the benefits of their strategy in terms of time saved, costs avoided, increased customer satisfaction or any other commonly used metric of success/benefit.”

Summary: The IRS has plenty of other priorities — like getting its own employees to pay their taxes — that should come before meddling with unnecessary changes to tax return software.

The #WasteOfTheDay is brought to you by the forensic auditors at OpenTheBooks.com

This article was originally published by RealClearInvestigations and made available via RealClearWire.