After a months-long review, the Internal Revenue Service will test a free tax-filing pilot program, IRS and Treasury Department officials said Tuesday.
Though many details about the pilot program still need to be worked out, the upcoming test run could mark the start of a new, free alternative to paid preparers and tax software companies, including TurboTax
INTU,
and H&R Block
HRB,
During the last tax-filing season, people spent an average of $140 and approximately eight hours preparing their taxes, according to IRS estimates. Factor in business returns and that average tax-prep increased to $250.
The IRS received more than 134 million electronically-filed tax returns through early May, and over 62 million were self-prepared while more than 72 million came from tax professionals, statistics show.
IRS Commissioner Danny Werfel announced the upcoming pilot program on the heels of a new IRS study saying the agency might be able to pull off its own income-tax return filing platform, even though it would not be an easy lift or come cheap.
The IRS is receiving $80 billion over a decade from last summer’s Inflation Reduction Act to upgrade services and step up high-end tax enforcement. Of that sum, $15 million was put aside to study whether the IRS could or should run its own filing option.
There’s consumer appetite for an IRS-run free filing choice and a prototype used by some consumers “exceeded their expectations in terms of ease of use and simplicity,” the study said.
If the IRS does decide to press ahead with a more widespread direct-filing system, it could cost between $64 million and $249 million annually, depending on variables such as the number of users, the study projected.
The upcoming pilot does not necessarily mean the start of a new IRS-run filing system, Werfel emphasized. The tax agency is just in testing mode — like any company testing a potential product’s functioning and demand, he said.
