TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Highlights

COMPLEXITY AND INSUFFICIENT OVERSIGHT OF THE FREE FILE PROGRAM RESULT IN LOW TAXPAYER PARTICIPATION

Final Report issued on February 3, 2020

Highlights of Reference Number:† 2020-40-009 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

The Free File Program is a private-public partnership between the IRS and Free File Inc. to provide online Federal tax preparation and electronic filing to economically disadvantaged and underserved populations at no cost to the individual or the Government.† This Program was available in Calendar Year 2003 to help eligible taxpayers find a reliable tax software product that will not charge a fee.

WHY TIGTA DID THE AUDIT

This audit was initiated in response to concerns raised by Congress and other stakeholders.† Their concerns relate to whether the Free File Program is operating as intended, and eligible taxpayers attempting to prepare and e-file their returns at no cost are diverted to tax return preparation services that are not free.† TIGTAís objective was to assess the IRSís oversight of the Free File Program.

WHAT TIGTA FOUND

The complexity, confusion, and lack of taxpayer awareness about the operation and requirements of the Free File Program are contributing reasons why many eligible taxpayers do not participate in the Program.† During Processing Year 2019, only 2.5 million (2.4 percent) of the 104 million eligible taxpayers obtained a free return filing through the Program.† In contrast, more than 34.5 million taxpayers, who met Free File Inc. membersí Free File Program criteria, used the membersí commercial software to file their tax return.

TIGTA called a statistically valid sample of 200 taxpayers who met the Free File Program criteria but used a Free File Inc. membersí commercial software and was informed by 87 (43 percent) taxpayers that they were charged a fee to prepare and e-file their Federal tax return.† Based on these results, TIGTA estimates that more than 14 million taxpayers met the Free File Program criteria and may have paid a fee to e-file their Federal tax return in the 2019 Filing Season.

Sufficient actions have not been taken to educate taxpayers that the only way to participate in the Free File Program is through the IRS website.† IRS and Free File Inc. management informed TIGTA that, to participate in the Program, taxpayers must access the IRS.gov Free File web page and select a link on this web page directing them to a Free File Inc. memberís website.† However, this provision is not in the Memorandum of Understanding (MOU) between the IRS and Free File Inc., and most taxpayers are unaware of this requirement.

In addition, the IRS does not provide adequate oversight to ensure that the Free File Program is operating as intended and in alignment with the MOU.† Moreover, taxpayers are not made aware of protections in the MOU and do not have a process to report concerns.

WHAT TIGTA RECOMMENDED

TIGTA made a total of nine recommendations which included that the IRS 1) develop and implement a comprehensive outreach and advertising plan to inform eligible taxpayers about the Free File Program and how to participate, 2) ensure that management performs quality reviews of MOU adherence testing that Free File Program analysts conduct on Free File Inc. membersí websites and software, 3) clearly inform taxpayers of their rights and protections in the Free File Program, and 4) develop a process for taxpayers to provide feedback or concerns on their experience using Free File.

IRS management agreed with six recommendations and partially agreed with three recommendations.† The IRS plans to take incremental steps on the three recommendations to implement corrective actions, evaluate these actions, and then determine the next steps.

READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

https://www.treasury.gov/tigta/auditreports/2020reports/202040009fr.pdf.

 

Phone Number ††/† 202-622-6500

E-mail Address †/TIGTACommunications@tigta.treas.gov

Website†††††† ††††††/https://www.treasury.gov/tigta