IRS to release report on free online tax-filing system in May

The IRS is aiming to release its potential plans for a free online tax-filing system by May, the agency announced Wednesday.

The Inflation Reduction Act, a sweeping economic reform bill signed by President Biden last year, ordered the IRS to conduct a study on how Americans could file their taxes online through a federal website or program without cost.

“The IRS is on track to deliver a direct file report to Congress in May 2023,” the agency said in a statement.

The IRS said it’s working with nonprofit organization New America to develop the report on the potential new system, which could take the form of an app or web platform that allows people to file a tax return directly with the IRS.

The IRS described New America as “dedicated to public problem solving with expertise in technological change, the tax code, and the taxpayer experience of everyday Americans.”

Ariel Jurow-Kleiman, a tax attorney and law professor at Loyola Law School, will be working with New America to give third-party analysis of the report on the new system and make sure it’s in line with the existing U.S. tax law, the IRS said.

Jurow-Kleiman and New America will be part of the task force established in the Inflation Reduction Act “to design an IRS-run free ‘direct efile’ tax return system.” The group will figure out how much a system would cost to develop and maintain, how taxpayers would feel about using such a system, and what the overall feasibility and organizational design of such a system would be.

The IRS has faced pressure to overhaul the ways Americans file taxes and break the grip of major tax preparation companies on the tax-filing process. The IRS partners with several online tax-filing firms through the IRS Free File program, which allows Americans below certain income thresholds to file taxes for free. But a slew of prominent corporations behind those website have faced federal and state scrutiny for blocking fair access to the free filing program.

The IRS was allotted $15 million to study how to build a federal tax-filing platform in the legislation approved by Congress last year.

That sum is part of the nearly $80 billion that Congress is giving to the IRS over the next decade in order to go after tax cheats, modernize its systems and increase taxpayer services.

Republicans have railed against the additional funding for the IRS, while Democrats have said it’s necessary to reduce the “tax gap” — the nearly $430 billion that the government is owed each year but fails to collect.

IRS data shows that much of that uncollected revenue is in personal business income generated by pass-through entities such as S-corps and limited liability corporations.