Senators: IRS Allowing Taxpayers to Be Scammed Out of Free Filing

November 13, 2019

The Honorable Charles P. Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

Dear Commissioner Rettig:

We are alarmed by new reports that members of the Free File Alliance (FFA) continue to use tricks and traps to charge low- and moderate-income families fees to file their taxes and concerned that despite assurances to the contrary, the Internal Revenue Service (IRS) continues to ignore the serious flaws and conflicts of interest in the program. Less than three percent of eligible taxpayers file their taxes for free through the program, and according to recent reports, this appears to be because the for-profit tax preparation companies that are members of FFA have taken deliberate steps to steer eligible customers toward their paying products. The IRS's continued refusal to police the bad faith efforts by participants in the Free File program to scam customers, which have now cumulatively cost millions of taxpayers millions of dollars¹, demonstrates that the only way for the agency to fulfill its commitment to free tax filing services for low- and moderate-income filers is to provide that service directly.

According to a report last month from ProPublica, Intuit, the owner of TurboTax and the largest participant in the Free File program, has used design tricks known as “dark patterns” to push customers eligible for Free File into paying more to file their taxes by “tap[ping] into Americans' fear, uncertainty and doubt about the tax filing process.”² A subsequent ProPublica report revealed that in the fall of 2018 — just days before the IRS Advisory Council was set to publish a “blistering” report concluding that “deficient oversight and performance standards for the Free File program put vulnerable taxpayers at risk” — IRS officials secretly extended the program for a full year, with no public negotiations or discussions.³

These new allegations are the latest manifestation of Intuit's twenty year-long battle to prevent the IRS from providing services directly to taxpayers for free, including by “manufacturing '3rd party grass roots' [sic] support;” “buy[ing] ad[s] for op-eds/editorials/stories in African American and Latino media;” and launching several products it confusingly marketed as free, when they cost many filers hundreds of dollars.⁴ As a result of these efforts, and aggressive lobbying, the IRS has given Intuit and the other FFA participants unprecedented control over the operation of the Free File program.

We have written to you in the past about the IRS's inability or unwillingness to fix the structural flaws in the Free File program, and the need to implement return-free filing in order to save taxpayers time and money. In May 2019, Senators wrote to express alarm that FFA members were inserting code into their Free File websites to hide them from search engine results, and asked you to remove tax preparation companies participating in these misleading practices from the program, and refund consumers who were steered into paying for products that should have been free.⁵ In 2016, Senator Warren's office released Tax Maze, a report outlining how the IRS has prioritized the interests of the tax preparation industry over American taxpayers — a pattern which the agency has, disappointingly, doubled down on in the years since.⁶

You have called Free File “an important tool”⁷ that you want to “have unparalleled integrity”⁸ and said the IRS is “committed to improving the Free File program.”⁹ In a May 23, 2019 letter to Senator Warren's office, you wrote that the IRS is “committed to ensuring that low-income taxpayers can electronically file for free.”¹⁰

Yet the IRS, under your leadership, continues to allow taxpayers to get scammed. In response to our inquiries, you assured Senator Warren that the IRS would hire an outside contractor “to provide a thorough, independent review” of the Free File program.¹¹

The subsequent report, which was written by the MITRE Corporation, was released last month. This report confirmed many of the key criticisms of the Free File program: its low utilization rate, the fact that companies are deliberately hiding their free program offerings from the public, and the failure by the IRS to conduct adequate oversight of the program. MITRE reported that the IRS “has not conducted a customer survey since 2009;” “the number of returns submitted through Free File have not increased in the same way that e-file numbers have;” 85% of web traffic searching for free tax filing led a user to a paid search result for a FFA member site; “different company offerings create confusion as a taxpayer navigates the various choices;” and “improvements could be made to enhance the user experience.”¹² But the report's conclusions and recommendations are irredeemably flawed. Inexplicably, this supposedly objective investigation frames these serious problems disingenuously and in an overtly industry-friendly way, handing the IRS a guidebook for how to excuse and ignore the program's most egregious failures. Indeed, the report begins with an “assumption] that industry will continue to be the entity that provides free tax return preparation and filing offerings to taxpayers” — rigging the conclusion before the report was even written.¹³

For example, the report spins failed oversight of the Free File program as a “lack of public awareness” about how public-private partnerships work — falsely suggesting that the structure of the program, rather than causing the problems identified by MITRE and others, somehow absolves or excuses the program from public accountability.¹⁴ The report recommends that the IRS use “talking points” about public-private partnerships “when addressing critics or publicly discussing the program” — suggesting empty words as an alternative to meaningful oversight and accountability.¹⁵

The investigation confirms that FFA companies deliberately hid Free File from taxpayers in order to steer them to paid products — but then “[does] not take a position” on “whether this is a deceptive business practice,” only recommending that the IRS decide if the agency should “determine their position” on this practice and update the FFA-IRS Memorandum of Understanding (MOU) accordingly.¹⁶

Even worse, the report goes to nearly-heroic efforts to whitewash the key objective failure of the program — that it only reaches less than three percent of eligible taxpayers. But instead of attempting to provide recommendations to solve this problem, the report again misstates the problem as an excuse, concluding that the majority of the 97% of eligible taxpayers who were forced to use non-Free File alternatives (paid tax preparers, Volunteer Income Tax Assistance [VITA], or non-Free File do-it-yourself software), and those who sought refund anticipation checks (RAC) or refund anticipation loans (RAL), should not be included in the “actual pool of candidates for the Free File program.”¹⁷ Cooking the numbers in this way allows the report to claim the program usage percentage is really nine percent¹⁸ — when, in fact, it is 2.6 percent.¹⁹

MITRE then suggests that this bizarre assertion regarding potential program users should be adopted as a permanent metric to track Free File's success. The report takes the program's greatest failure and, rather than providing recommendations on how to fix it, uses it to justify abandoning eligible taxpayers who were tricked by abusive FFA member practices in the past.

Despite Free File's serious and well-documented failures, the report makes the extraordinary suggestion that Free File has been a success. It states the “program objective of providing the venue for free tax filing for 70% of the population has been met” — even though less than three percent of eligible taxpayers have been able to access and use those services.²⁰ Ultimately, the report contains not a single recommendation on how to fix the program to ensure that it achieves its objective of “extending the benefits of online federal tax preparation and electronic filing to economically disadvantaged and underserved populations at no cost to either the individual user or to the public treasury.”²¹ Indeed, MITRE did not even interview one of the millions of taxpayers who make up 97% of eligible filers who did not use the program.²²

In order to better understand your commitment to providing eligible taxpayers with free filing options, addressing egregious abuses by Free File Alliance member companies, and conducting a serious, unbiased assessment of the Free File program, we ask that you provide answers to the following questions no later than November 27, 2019:

Sincerely,

Elizabeth Warren United
Sates Senator

Sherrod Brown
United States Senator