IRS reform revived with removal of Free File provision

Tax Hot Topics newsletter Congress broke a deadlock on IRS reform legislation after the House of Representatives unanimously approved a revised version of the bill June 10 omitting a controversial provision that would have codified the Free File program.

The Taxpayer First Act (H.R. 1957) aims to update IRS technology, address cybersecurity and make various improvements to customer service and tax administration. It includes provisions that would:

  • Codify an independent appeals process with limited ability for the IRS to deny taxpayers access
  • Require the IRS to create a comprehensive customer service plan
  • Create an internet platform for filing Form 1099
  • Allow tax payments by debit or credit cards
  • Lower the threshold for when electronic returns are required
  • Require electronic filing for tax exempts filing any Form 990 and Form 8872

The bill initially passed the House of Representatives by voice vote in April, but had been stuck in the Senate after several Democrats voiced opposition to the Free File provision, preventing a fast-tracked process that requires unanimous consent.

The Free File program is the product of an agreement between the IRS and a consortium of tax return preparation service providers. Under the agreement, the consortium offers free return preparation to taxpayers below a certain income threshold in exchange for the IRS pledging not to offer similar, competing services of its own.

Opponents of codifying Free File have argued this would permanently bar the IRS from implementing a tax agency reconciliation, or “return-free filing” system under which the agency could pre-fill or partially prepare taxpayer returns. The program has also come under fire from lawmakers recently after allegations that qualifying taxpayers were being driven toward paid services.

Tax writers in the House and Senate considered different ways to fix the provision and assuage these concerns over the past several weeks, but eliminating the provision entirely appears to have been the only viable path forward.

The bill’s revival in the House indicates a strong likelihood of passage in the Senate. However, the need for unanimous consent preserves the possibility that a single objection could stall the effort.

Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

Omair Taher
Senior Associate
Washington National Tax Office
T +1 202 861 4143

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