While the IRS pours resources into the controversial ‘Direct File’ program—an initiative lacking congressional authorization—it has neglected the proven Free File program, which offers free income tax return filing and reduces administrative costs. A recent Treasury Inspector General for Tax Administration (TIGTA) audit highlights critical oversight failures that have hindered Free File’s reach and potential.
What are Direct File and Free File?
The IRS implemented Direct File as a pilot program for the 2024 tax filing season, despite lacking authorization from Congress. Additionally, IRS Commissioner Daniel Werfel failed to provide transparency to lawmakers and the public about the costly program during its development.
Direct File allowed certain taxpayers in specific states to file their federal taxes directly with the IRS through a government-run system. Touted as a system that provides “free” filing for those eligible, it cost taxpayers at least $114 million in FY 2024. While the IRS had previously estimated annual costs up to $249 million to implement Direct File, the IRS has not yet provided a full accounting of all the resources devoted to the pilot project, whose costs will grow since announcements from the IRS that Direct File will be expanded to additional states for the 2025 filing season. A new Freedom of Information Act request by the Taxpayers Protection Alliance reveals significant taxpayer dissatisfaction with the IRS’s Direct File pilot program, contradicting the agency’s claims that 90% of users rated the program as “excellent.”
The IRS also manages a free filing program through the Free File Alliance, a public-private partnership between the IRS and tax software organizations who provide their online filing and preparation services for free. Free File provides two online aids for taxpayers free of charge; guided tax software and Free File Fillable Forms. The IRS offers the following description of each service on the “File for Free” tab on its website:
Guided Tax Software provides free online tax preparation and filing at an IRS partner site. Our partners deliver this service at no cost to qualifying taxpayers. For the 2025 tax filing season, taxpayers whose AGI is $79,000 or less qualify for a free federal tax return.
Free File Fillable Forms are electronic federal tax forms, equivalent to a paper 1040 form. You should know how to prepare your own tax return using form instructions and IRS publications if needed. It provides a free option to taxpayers whose income (AGI) is greater than $79,000.
In June 2024, the IRS announced a five-year extension of Free File, and noted that 2.9 million taxpayers used the service in this year’s filing season, an increase of 200,000—or 7.3 percent—since the previous year. The Free File Alliance estimates that the program has saved taxpayers $2.1 billion since 2003.
Memoranda of Understanding
The Free File Alliance is governed by a Memorandum of Understanding (MOU) that is regularly revised by the IRS and the partner organizations. The MOU details the expectations and intended outcomes of the partnership with tax software organizations. The most recent was signed in April 2024 which, as noted above, extended the terms of its agreement to 2029. One critical provision, introduced in the March 2015 MOU, requires the IRS to publicly promote the Free File program. As it currently stands, section 4.35.1 of the MOU states:
The IRS is responsible for promoting the Free File Program, and will make consistent, good-faith efforts to promote it in appropriate media activities, interactions with other federal agencies, social media and social networking activities, and in its appropriate technology applications.
The Free File Alliance notes that 70 percent of taxpayers are eligible for free filing through the service. However, according to a report by the U.S. Government Accountability Office, only 4 percent of taxpayers who are eligible for Free File took advantage of the program during the 2021 filing season. Most of those who were eligible and did not utilize Free File used a third party website, often a partner of Free File. Had they used the program, they would have gotten the same service without having to spend additional money.
TIGTA notes that the IRS “has not implemented any effective solutions to increase taxpayer participation in the Free File program.” In 2020, TIGTA recommended that the IRS develop new ways to promote Free File, but its most recent report finds that the IRS has not implemented new strategies. TIGTA recommends that the IRS should leverage social media platforms like Facebook, Twitter, Instagram, and YouTube to reach younger taxpayers and first-time filers. Video tutorials, infographics, and targeted ads could simplify the process and highlight eligibility requirements. This would provide an opportunity to reach millions of people, particularly younger taxpayers or those with limited access to traditional advertising channels.
Beyond what was recommended by TIGTA, the IRS could collaborate with influencers or community leaders who can help spread the word to groups that may be less likely to see traditional government outreach. This would help target newer, younger taxpayers who get their news from social media sites. The IRS could tailor targeted campaigns to specific groups, such as low- and moderate-income individuals, first-time filers, or seniors. These ads could explain the benefits of Free File, provide step-by-step guides for accessing it, and highlight the program’s eligibility requirements.
Conclusion
The IRS has an opportunity to minimize compliance costs by prioritizing and improving the Free File program, which provides no-cost filing options and reduces administrative burdens at the agency. Instead of diverting resources to the unauthorized and costly Direct File initiative, the IRS should focus on increasing awareness of Free File. By improving Free File partners and ramping up promotional efforts, the IRS could significantly expand the program’s reach, saving millions of taxpayers money and simplifying the tax filing process.