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Embedded Tax Filing Software Troubles Some Tax Attorneys

Posted on Jan. 30, 2024

Embedded income tax filing software that allows taxpayers to file their returns for low or no fees has raised concerns about potential trade-offs for consumers.

Column Tax, a tax filing platform that can be plugged into other apps, has more than 30 customers, including Current, Varo Bank, and MoneyLion Inc., according to CEO Gavin Nachbar. The start-up, which launched in 2021, has attracted seed funding from venture capital firms, including Bain Capital Ventures, South Park Commons, and Core Innovation Capital. It is an IRS authorized e-file provider.

“We’re on a mission to build the next generation of tax software,” Nachbar told Tax Notes.

Column Tax’s software is embedded inside an app or multiple apps, where it can connect to the rest of the user’s finances. It has a lower cost structure than tax software offered by other providers, according to Nachbar. Users can file both their state and federal tax returns.

Column Tax charges banks and financial technology companies for its software, and it is up to them how they want to monetize it — some offer it for free, while others offer it in a subscription or price it directly, Nachbar explained.

“We think there’s an amazing opportunity for consumers,” Nachbar said. “There’s so much they can do to help improve their financial situation and their financial lives, and tax data can be a really big part of that if it’s done so in a secure and compliant way.”

Data Sharing

Some tax attorneys are concerned that users may consent to their tax data being shared through the product without understanding what they are agreeing to.

“It doesn’t pass the smell test having your bank offer tax preparation services,” said Mandi Matlock of Texas RioGrande Legal Aid. “Tax return prep should be decoupled from any type of financial transaction — that would be the best way to protect taxpayers.”

Matlock acknowledged that while consumers may think the software sounds like a good idea, they may not appreciate the nonfinancial costs involved.

There are limited user-friendly ways for all taxpayers to file returns for free, especially while the IRS’s direct-file service is in a limited pilot phase, according to Natalie Loebner of Loebner Consulting.

“If the banks can really offer access to comprehensive tax filing software to their customers for free — without needing to monetize the tax return data — then I think that is excellent,” said Loebner, a former trial attorney in the Justice Department Tax Division. “However, if this is just another bait-and-switch attempt to trick taxpayers into using a service that is marketed as ‘free’ but has lots of caveats, that is a shame.”

Data sharing by Column Tax, when it is acting as a tax filing provider or tax return preparer or is sharing data with a third party, “would be explicitly permissive, requested by the taxpayer, and compliant with IRC section 7216,” Nachbar said. Column Tax’s partners are aware of the section 7216 requirements, according to Nachbar.

Section 7216 prohibits tax return preparers from knowingly or recklessly disclosing tax return information. Violators face criminal penalties, including fines of up to $1,000, a prison sentence of up to a year, or both, for each violation.

“Just like any software in the tax industry, we would not and do not share taxpayer information without positive consent from taxpayers,” Nachbar said. “By default, we do not share anything.”


The data sharing practices of tax preparation software companies came under scrutiny after news website The Markup reported that H&R Block, TaxAct, and TaxSlayer were sending sensitive financial information to Facebook through a piece of code called the Meta Pixel. The reporting prompted congressional Democrats to ask the Treasury Inspector General for Tax Administration to investigate the practices of the three companies.

Some major software companies have been using inadequate consent for data sharing, according to Nina Olson of the Center for Taxpayer Rights.

Olson said she thinks the government is falling short when it comes to enforcing section 7216, which she worked on while she was the national taxpayer advocate. Her concerns about the Meta Pixel debacle and section 7216 are explained in the blog Procedurally Taxing.

“We really tried to think about where the risks were, and yet didn’t want to stop return preparation,” said Olson, who is also a member of Tax Analysts’ board of directors. “I’m just very concerned that the IRS, the Department of Justice, and the inspector general are not enforcing it.”

TIGTA said it couldn’t comment on the application of section 7216 to a specific vendor, and the IRS didn’t immediately respond to a request for comment. The Justice Department declined to comment.


Current, a fintech company, recently announced it was offering free tax return filing to its customers through Column Tax’s embedded software.

A spokesperson for Current told Tax Notes in an email that tax filing is now free on its app for members who receive direct deposits to their Current accounts. Anyone who hasn’t set up or received an eligible direct deposit of at least $200 on Current in the 35 days before filing a return is charged a $20 filing fee, which Current points out is “still significantly less” than the average cost of filing taxes.

Current makes money “when members spend money in their accounts,” the spokesperson said.

Users who opt into data sharing on Current’s app allow Column Tax to share their tax data with Current so it can send them products and offers regarding “personalized financial product experiences, banking products, lending or loan products, investment or retirement related products or additional products or services,” according to a Tax Notes review of the Current app. Data disclosed to Current includes the tax refund amount, amount of tax owed, refund method, payment method, business loss carryforward, and student loan interest. The consent is valid for three years.

Asked whether Current shares users’ tax data, the spokesperson pointed Tax Notes to its privacy policy, which says it doesn’t “rent, sell, or share personal information about you with other people or nonaffiliated companies for their direct marketing purposes, unless we have your permission.”

Loebner said the situation highlights a limitation of section 7216.

“There is no way for Column Tax to police that Current is using the data for the stated purposes, unless the stated purposes are yes to whatever,” she said.

Olson said that while Column Tax’s consent form appears to be the type of section 7216 consent envisioned by the regulations, she is concerned that some of the language may be too broad.

“The consent should send shivers down people’s spines” because it indicates that users’ data will have "zero protection once it is in the hands of others," Olson said.

Varo recently announced that it is the first bank to offer free tax return filing through its app to customers via a partnership with Column Tax.

“Our decision to offer tax filing for free and eat the nominal costs on our end will save our customers the time and money they’ve been lacking in past years, bringing peace of mind to the 75 percent of Bankrate survey respondents who noted this year’s tax return as very or somewhat important to their financial health,” the company said in an email to Tax Notes.

Varo says it doesn’t share any tax return data with third parties, and that its tax return preparation and filing integration with Column Tax doesn’t directly generate revenue.

“We believe that offering this service for free brings added value to our existing customers while enticing new customers to join, leading to future revenue gained from interchange and the use of other Varo Bank products,” the company said.

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