18 states urge Biden’s IRS to halt confusing new tax filing program that could hurt lower-income most

Previously slammed as “unconstitutional,” state financial officers urged the federal government to put the kibosh on a multibillion dollar tax program deemed “a solution in search of a problem.”

As the ramifications of the recent $1.2 trillion omnibus bill only began to be exposed, state officials were continuing to work to stop past federal overreaches brought down by President Joe Biden’s administration. This included the “flawed” Direct File tax filing program brought about by the so-called Inflation Reduction Act (IRA).

Monday, a letter issued by a group of 21 officials from 18 states was submitted to Treasury Secretary Janet Yellen, Deputy Treasure Secretary Wally Adeyemo and Internal Revenue Service Commissioner Daniel Werfel asserting that the costs of the program “far outweigh any potential benefits.”

“Regrettably,” they wrote, “Direct File is a solution in search of a problem.”

“Direct File has the potential to do more harm than good for taxpayers. It will only enable them to file their federal tax returns. Taxpayers who are unaware that they must separately file state returns will not receive anticipated state refunds this spring,” the officials warned. “This is significant because many taxpayers who use Direct File are likely to be lower-income and build budgets around anticipated tax refunds.”

“Even worse, confused taxpayers who neglect to file their state returns will be at risk of incurring state penalties…Imagine the surprise to the taxpayer who becomes subject to audit by the IRS after having filed through Direct File and having felt assurances that the tax return was prepared properly through the IRS’s own system,” continued the letter.

The IRA had required the IRS to hire a third party to study “the overall feasibility, approach, schedule, cost, organization design, and Internal Revenue Service capacity to deliver” the Direct File program and in Feb. 2023 the agency announced a contract to that end with the left-wing New America Foundation, a nonprofit supported at the time by the George Soros-backed Open Society Foundation, the Bill and Melinda Gates Foundation, Bloomberg Philanthropies and others.

Yellen went on to authorize the program in May 2023 leading to the current pilot taxpayer-funded tax filing preparation program that was originally estimated to cost $2.5 billion over ten years.

However, according to the Monday letter, that claim was left unsubstantiated by the Treasury Inspector General for Tax Administration report and a third-party report from commercial data company Govini “estimated that the actual costs would be closer to those of Healthcare.gov, which as cost the taxpayers tens of billions of dollars.”

“Surely a better use of taxpayer funds would be for the IRS to boost existing marketing efforts, or undertake new marketing efforts, for existing low- and no-cost tax preparation options rather than try to build a flawed service with the potential to harm those it seeks to help,” the states argued. “Again, we urge you to shut down Direct File. We appreciate your attention to this important matter to protect taxpayers.”

The latest call followed an effort spearheaded by Montana Attorney General Austin Knudsen who was joined by the AGs of Georgia, Idaho, Iowa, Louisiana, Missouri, Nebraska, South Carolina, Tennessee, Texas, Utah, Virginia and West Virginia

They charged that the Direct File program was part of “unnecessary and unconstitutional efforts to empower the Internal Revenue Service (IRS) with the expansive authority to prepare and file tax returns for all taxpayers.”

“…the American taxpayers do not want to invite the proverbial fox into the hen house,” they’d said as the called for the Direct File program to be shutdown.

IRS Letter by James Lynch

The new letter had been sent by financial officers and treasurers from: Alaska, Florida, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Nebraska, North Carolina, Ohio, Oklahoma, South Carolina, South Dakota, Utah, West Virginia and Wyoming, and made note that there already existed “30 million free fillings for taxpayers made available by the for-profit tax preparation industry last year.”

“Additionally, the IRS itself markets do-it-yourself tax preparation options, such as the Volunteer Income Tax Assistance Grant Program and the Free File Alliance, the IRS Free File Program,” stated the officials.

While the letter argued limited interest in the program, particularly as it lacked a state filing option, Treasury Department spokesperson Haris Talwar told Fox Business, “Thanks to President Biden’s Inflation Reduction Act, millions of American taxpayers have a free, secure option to file online directly with the IRS for the first time.”

“Already this year, tens of thousands of taxpayers have filed with this free system that ensures taxpayers get their full refund by showing them the numbers and explaining the credits they should receive,” said the spokesperson. “The IRS is committed to ensuring customer service for all taxpayers remains at record highs — the IRS is answering over 90% of calls, up from 15% when President Biden took office, and the average call wait time down to under three minutes.”

Kevin Haggerty


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