April 4, 2024 • 16 mins
After years of letting the private tax e-filing industry run the show, the IRS is finally piloting an online tool that’s supposed to make tax season easier – and free – for thousands of taxpayers in a dozen states.
On this episode of The Big Take DC podcast, we explore how the idea got off the ground, who can use it, and whether the program could ever compete with the powerful private tax-filing industry.
Corrects date the Free File Alliance was launched in podcast published April 4.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. Lauren Dalbert is the
type of guy who does not put off filing his taxes.
Speaker 2 (00:13):
Getting it in as soon as I got my W two's,
so did that I could get that refund as soon
as possible.
Speaker 1 (00:19):
In the past, he's tried pretty much every strategy in
the book to prep for them, hiring a professional, using
websites like TurboTax, even doing the math himself.
Speaker 2 (00:29):
When I was an Army I would do other guys
taxes for them, and this was just paper and pencil
back in the eighties and stuff like that.
Speaker 1 (00:37):
This year, the Economic Security Project, an advocacy group that
sometimes partners with the Community Organizing Foundation where he works,
told him he was eligible for another option. As a
California resident with just one income source plus disability from
the VA, he could file his taxes directly through the
IRS website for free for the first time this year.
Speaker 2 (00:59):
I didn't have to pay somebody. It could be over
one hundred dollars by the time you're finish using those
online tax preparing services.
Speaker 1 (01:08):
He says. It was pretty user friendly, no extra bells
and whistles. He did run into some trouble verifying his identity,
but says it didn't take long to connect with a
real person who could help him. All in all, he
says the whole process took less than an hour. Easy free,
done in an hour? Are we still talking about filing taxes? Today?
(01:30):
On the show? The IRS is piloting a new online
tool this year that's supposed to make tax season easier
for thousands of taxpayers in a dozen states. We'll dig
into how this came, about how well it's working, who
can use it, and whether this government pilot program could
ever compete with a powerful private tax filing industry. This
(01:51):
is the Big Take DC podcast from Bloomberg News. Filling
in for Salaamosen, I'm Sarah Holder. We're going to get
into that new IRS program. But to understand why it's
such a big deal and why it took so long
for the government to offer it, you need to understand
the rise of TurboTax. So I sat down with my
(02:14):
colleague Brody Ford.
Speaker 3 (02:16):
I write about the tech industry here, especially software companies
that we don't often think about but end up running
much of our life, like in this case taxes.
Speaker 1 (02:26):
So it's April. Many Americans have just filed their taxes
or will have to in the next week or so.
How did it become so complicated for Americans to file
their taxes?
Speaker 3 (02:38):
Since the dawn of time? It's been hard to do
your taxes. Everyone's been mad at it. The IRS estimates
that last year people spend an average of one hundred
and fifty dollars and nine hours doing their taxes. It's
a funny way we do it in the US. Right
we have to write what we think we owe the
government and send it to them, and then they say
(02:58):
yes or no. Have that information somewhere, right, The thought
being that, especially if you just have W two and come,
this is a very simple calculation on how much money
you owe. They can just spit out that number.
Speaker 1 (03:10):
And nearly half of the country's taxpayers file using a
do it yourself site like TurboTax. How did turbotox promise
to revolutionize the process of filing one's taxes?
Speaker 3 (03:23):
So their promise was a simple one that this was
kind of the late eighties. There was this notion of like, hey,
everything could be done better digitally. To some extent that
was probably true, and that it would be a lot
easier and even more fun to do it. You know,
your taxes on the computer. Over time, what became interesting
there is their promise went from.
Speaker 4 (03:41):
It would be easy to it would be free.
Speaker 3 (03:45):
I don't know if you remember on Super Bowl commercials
or you know YouTube targeted ads, you'll see people throwing
the world free around the lot as it really to
do in your taxes and TurboTax. That's the talking point
they settled on, and that is I became so contentious
because it's only if you have simple taxes.
Speaker 4 (04:04):
Think about just W two.
Speaker 3 (04:06):
Income, not too many assets. You probably didn't sell any stock.
Is it that it's available for free?
Speaker 1 (04:12):
What's it like to use turbo tax? Can you walk
us through? You open up the site, you start putting
in your information.
Speaker 3 (04:19):
I did some gonzo journalism last week and I did
my taxes. I am a TurboTax user, you know. I
just put on my W two from Bloomberg and they
scan it and they say, okay, here's the deductions you
should do. It's a very fast, streamlined process, and it's
very gamified.
Speaker 4 (04:34):
You know. Think about like if.
Speaker 3 (04:35):
You've shopped on Timu or scrolled on TikTok with all
these little like counters going like congrats, you're finishing your
taxes so quickly. You did such a good job. What's
funky about it is they just try to upsell you
like crazy. Right. There are many many screens that will
say things like, wait a second, do you want a
second pair of eyes on this?
Speaker 4 (04:53):
Do you want an expert to take a look? Did
you do this in the year? Oh? Do you want
audit protection?
Speaker 1 (04:59):
Right?
Speaker 4 (04:59):
These things that you.
Speaker 1 (05:01):
Don't even know to want that. No, until they suggest.
Speaker 4 (05:04):
That, I'm like, dog, do I need audit protection? Right?
You have this sense of wait a second, I probably
need this thing.
Speaker 3 (05:11):
That's a way that you end up paying when maybe
you actually didn't have to.
Speaker 1 (05:18):
This all raises a question, how did we end up
in a situation where the government knows what you owe,
but you might have to use a service like TurboTax
to figure it out. Brody says the government made a
conscious choice not to provide the service when it struck
up an agreement with private tax filing companies, a.
Speaker 3 (05:37):
Kind of non aggression pact between private industry and the government.
Was this thing called the Free File Alliance, where essentially
the government will not create a direct filing service as
long as these private tax companies think TurboTax, HNR, Block
tax Layer offer tax preparation for free to middle and
(05:58):
low income Americans, and they agreed that if you are
below this certain income threshold, you can get your taxes
for free. At the time, it was maybe seventy thousand,
you know, like a relatively kind of middle of the
road income, so a lot of people were included in
this makes sense fair enough that you know, okay, you
can have a functional monopoly in this as long as
(06:19):
you use the profits you get from the higher income
earners to subsidize the system for free for the middle
and low income lo and behold, only about four percent
of people ended up using the free service. And you
can debate why that is. The companies will say, because well,
they ended up wanting some of the more bells and
whistles on the paid version. What a horde of regulators
(06:41):
will say is because you designed the product in a
way that funneled people away from the free version to
the paid version, right, and regulators would say that they
would do things that really do not pass the smell test,
you know, like taking out advertisements that if you google
free taxes, the first result would be the pay aid version.
Rather than the actual free version you're looking for. Comedian
(07:04):
Hassama naj has a whole episode about this of just
trying to get the actual free version of turbo tax,
but it's just like felt nearly impossible.
Speaker 1 (07:12):
In Boom, we hit a paywall. We reached out into it.
The company that owns TurboTax. In response to the allegations
of upselling, they told us, quote, IRS Direct File is
a solution in search of a non existent problem. Today,
one hundred percent of Americans, regardless of income level or
how complex their taxes are, can file their federal and
(07:34):
state taxes completely free of charge. We are proud that
over the last decade, we've helped more than one hundred
and twenty four million Americans file their taxes completely free
of charge.
Speaker 3 (07:45):
I think it's a very interesting talking point they use
that essentially taxes are already free through our service, which
is only true if you didn't have certain complicated situations
like unemployment, income, student loan payments, owning a home. These
very common situations that make it that taxes are not free.
Speaker 1 (08:07):
And so they're saying tax preparation is free. We're offering
a better service for people that have these complicated needs.
Speaker 3 (08:16):
I think in a broader sense too, they just use
that kind of classic talking point of government is inefficient.
Government isn't going to be able to build this. Well,
we've spent X number of years building this software that
people by and large do find pretty streamlined and easy
to use. The government's going to end up spending all
this tax payer money to build something that already exists.
Speaker 4 (08:36):
You know, they're a prolific lobby year.
Speaker 3 (08:37):
They've spent almost fifty million over the last two and
a half decades.
Speaker 1 (08:41):
Critics of that lobbying include Senator Elizabeth Warren, who, in
a statement to Bloomberg earlier this year, called into its
actions an effort to quote try and stop free online
tax filing because they're terrified that the billions in profits
they make by scamming taxpayers are at risk. In response,
and into It spokesperson told Bloomberg that the IRS E
(09:02):
filing tool will quote cost taxpayers billions of dollars for
something already free of charge, and with potentially disastrous effects
on the finances of millions of Americans. It's worth noting
last spring, the IRS estimated that the pilot would cost
between around sixty four and two hundred and fifty million dollars,
depending on how many taxpayers use it at the end
(09:25):
of the day, whether it's due to lobbying or a
lack of political will to fund an IRS e filing
effort sooner. It's taken a really long time to get
any kind of alternative up and running.
Speaker 3 (09:36):
There was a conversation twenty years ago but whether the
government should build what is effectively a TurboTax competitor, And
now twenty five years later, we are just starting.
Speaker 4 (09:44):
To do that.
Speaker 1 (09:47):
So that brings us to today and this new pilot program.
How the government finally launched this free filing tool, and
how it's going after the break, we're back. After decades
of talk about the US government creating its own alternative
(10:09):
to private e filing services, it's finally happening, at least
for some Americans. How did the idea of a government
run direct file option get off the ground.
Speaker 3 (10:21):
There was a couple of large regulatory actions against TurboTax
that led them to pull out of this non aggression treaty,
this free file Alliance, this jargony thing that meant that
the private industry would agree to give taxes for free
to low income people, but in practice never really worked
and so eventually TurboTax pulled out of this system. They
just said, we're not doing this anymore. Same for H
(10:44):
and R Block and these are really the anchors of
that system. So the collapse of this is really what
led the government to say, hey, this program is not working.
We have some fresh funding from Congress towards the IRS.
Remember the Inflation Reduction Act. There was a large number
of funds that went there. They said, this is a
good moment to push forward and try to build this demo,
(11:07):
and it's actually come together quicker than many expected. They
expect that it could cover nineteen million taxpayers eventually.
Speaker 4 (11:16):
Right.
Speaker 3 (11:16):
They hope one hundred thousand people participate this season, which
is no small undertaking.
Speaker 1 (11:22):
To get a closer look at the new pilot tool,
I reached out to Aaron Slowey, who covers the IRS
for Bloomberg Industry Group.
Speaker 5 (11:28):
So it's only in twelve states. Most of those states
are states with no income tax. There's four that are
partnering with the IRS. I do have an income tax.
It's New York, Massachusetts, California, and Arizona. So that's like
location wise. The first requirement and then it's like low
and moderate income type of returns, So the simplest type
(11:50):
of returns, those are the people that are going to
be able to qualify. And the IRS said that on
purpose because it is in its pilot phase, so they
just want to test it out to see if this
is really going to work for people.
Speaker 1 (12:01):
So erin how does it work?
Speaker 5 (12:03):
So they actually did a demo with some reporters and
I was really surprised about how like the clean layout,
the way that it looked. You go on and they
actually first vet to see if your situation qualifies before
you even get started to use the pilot and then
after that you have to do a verification process and
after that is when you could start your direct file return.
(12:26):
And I heard it has taken as short as fifteen
minutes to file your returns through direct file. Wow, so yes,
it is a lot shorter than the average. Granted that
was one person filing a return. I think depending on
how prepared you are with your paperwork, it will just vary.
But so far the RS has said they've had a
lot of success with direct file.
Speaker 1 (12:46):
How is the IRS measuring the program success?
Speaker 5 (12:49):
As of mid March, they've had about fifty one thousand
people sign up to use direct file. Now, the caveat
with that is that not all those people have filed
their returns yet, so we'll see. I guess once tax
filing is using closes how many people actually file their
returns using direct file. But part of the battle that
the IRS is going to have is because they're keeping
it in such a limited size, both just limiting the
(13:11):
number of states and the type of tax situations that
can use direct file, Like, they aren't going to be
like look at the sheer number of people that used
this pilot. So I think the bottom line for the IRS,
I think they're going to wonder do people like it
and did it work? It seems like very fundamental questions,
but the like with the way that government run websites
(13:31):
have gone before, that's what they need to get answered.
Speaker 1 (13:34):
What do this program? Skeptics say?
Speaker 5 (13:37):
The two big skeptics are the Republicans and the tax
prep companies. People are really concerned about the cost. I
think there's a lot of fear just surrounding the IRS's reputation.
They don't want it to be an enforcer collector and prepare.
Speaker 1 (13:51):
The possible cost and the IRS's reputation aren't the only
challenges for the program. The pilot didn't launch until March,
which critics say was too late to capture many taxpayers
filing the season. Plus, as Brody points out, it's limited
in scope.
Speaker 3 (14:06):
Keep in mind it is only for federal returns, so
your state return you'll still have to do somewhere else.
Maybe you'll have to go crawling back to turbo tax.
So I mean the headline that into it would be
having their fingers crossed for is that nobody ends up
using it right right, And I mean that's a total possibility,
because at the end of the day, a big rule
in software is that people stick to what they know.
(14:27):
I think, if you've been filing your taxes a certain
way for a number of years, the odds of you
trying the experimental new method is pretty low. So I'm
really watching for adoption. I mean, do people actually use
this thing? Do we see some crazy complaints around, like, hey,
this messed up my taxes. I think a really famous
kind of government failure with technology was the Healthcare dot gov.
Speaker 1 (14:51):
Yeah, the Obamacare role. Yeah.
Speaker 3 (14:53):
I mean that is like one of those moments where
you know, people walked away and said Wow, maybe the
government can't build technology. And I think, you know, I've
seen some articles where people seem pretty rosy on the
new system, but if we have some situations like that,
it could really dent it in the future.
Speaker 4 (15:09):
Yeah.
Speaker 1 (15:09):
And since the government has promised and finally offered this
free tax filing service, how has TurboTax reacted?
Speaker 3 (15:16):
You know, so they say that, hey, this is a
non event to us, This is a very small shred
of you know, our user base.
Speaker 1 (15:25):
To that point into it told us, quote, IRS direct
file will not offer any improvement over filing options currently
available to and used by taxpayers, nor do we believe
it will have a material impact on the industry or
our financial results.
Speaker 3 (15:39):
But what it is to them is a long term risk, right,
because they rely on TurboTax as a kind of new
user pipeline and as a way to get data about
the way that taxes look and improve their product for others.
Speaker 4 (15:53):
The idea that.
Speaker 3 (15:54):
Nineteen million of that group are going to go over
to a free federal service, that is so and leah
risk to.
Speaker 1 (16:01):
Turbo tax and to its bottom line. Absolutely Thanks for
listening to the Big Take DC podcast from Bloomberg News.
I'm Sarah Holder. This episode was produced by Julia Press.
It was edited by Aaron Edwards and Laura Davison. It
was mixed by Ben O'Brien. It was fact checked by
Alex Sugia. Naomi Shaven is our senior producer. Michael Shepherd,
(16:24):
Wendy Benjaminson and Elizabeth Ponso provide editorial direction. Nicole beamsterbor
is our executive producer. Sage Bauman is Bloomberg's head of podcasts.
Please subscribe and review The Big Take DC wherever you
listen to podcasts. It helps new listeners find the show.
Thanks for listening. We'll be back next week.
Bloomberg Audio Studios, podcasts, radio news. Lauren Dalbert is the
type of guy who does not put off filing his taxes.
Speaker 2 (00:13):
Getting it in as soon as I got my W two's,
so did that I could get that refund as soon
as possible.
Speaker 1 (00:19):
In the past, he's tried pretty much every strategy in
the book to prep for them, hiring a professional, using
websites like TurboTax, even doing the math himself.
Speaker 2 (00:29):
When I was an Army I would do other guys
taxes for them, and this was just paper and pencil
back in the eighties and stuff like that.
Speaker 1 (00:37):
This year, the Economic Security Project, an advocacy group that
sometimes partners with the Community Organizing Foundation where he works,
told him he was eligible for another option. As a
California resident with just one income source plus disability from
the VA, he could file his taxes directly through the
IRS website for free for the first time this year.
Speaker 2 (00:59):
I didn't have to pay somebody. It could be over
one hundred dollars by the time you're finish using those
online tax preparing services.
Speaker 1 (01:08):
He says. It was pretty user friendly, no extra bells
and whistles. He did run into some trouble verifying his identity,
but says it didn't take long to connect with a
real person who could help him. All in all, he
says the whole process took less than an hour. Easy free,
done in an hour? Are we still talking about filing taxes? Today?
(01:30):
On the show? The IRS is piloting a new online
tool this year that's supposed to make tax season easier
for thousands of taxpayers in a dozen states. We'll dig
into how this came, about how well it's working, who
can use it, and whether this government pilot program could
ever compete with a powerful private tax filing industry. This
(01:51):
is the Big Take DC podcast from Bloomberg News. Filling
in for Salaamosen, I'm Sarah Holder. We're going to get
into that new IRS program. But to understand why it's
such a big deal and why it took so long
for the government to offer it, you need to understand
the rise of TurboTax. So I sat down with my
(02:14):
colleague Brody Ford.
Speaker 3 (02:16):
I write about the tech industry here, especially software companies
that we don't often think about but end up running
much of our life, like in this case taxes.
Speaker 1 (02:26):
So it's April. Many Americans have just filed their taxes
or will have to in the next week or so.
How did it become so complicated for Americans to file
their taxes?
Speaker 3 (02:38):
Since the dawn of time? It's been hard to do
your taxes. Everyone's been mad at it. The IRS estimates
that last year people spend an average of one hundred
and fifty dollars and nine hours doing their taxes. It's
a funny way we do it in the US. Right
we have to write what we think we owe the
government and send it to them, and then they say
(02:58):
yes or no. Have that information somewhere, right, The thought
being that, especially if you just have W two and come,
this is a very simple calculation on how much money
you owe. They can just spit out that number.
Speaker 1 (03:10):
And nearly half of the country's taxpayers file using a
do it yourself site like TurboTax. How did turbotox promise
to revolutionize the process of filing one's taxes?
Speaker 3 (03:23):
So their promise was a simple one that this was
kind of the late eighties. There was this notion of like, hey,
everything could be done better digitally. To some extent that
was probably true, and that it would be a lot
easier and even more fun to do it. You know,
your taxes on the computer. Over time, what became interesting
there is their promise went from.
Speaker 4 (03:41):
It would be easy to it would be free.
Speaker 3 (03:45):
I don't know if you remember on Super Bowl commercials
or you know YouTube targeted ads, you'll see people throwing
the world free around the lot as it really to
do in your taxes and TurboTax. That's the talking point
they settled on, and that is I became so contentious
because it's only if you have simple taxes.
Speaker 4 (04:04):
Think about just W two.
Speaker 3 (04:06):
Income, not too many assets. You probably didn't sell any stock.
Is it that it's available for free?
Speaker 1 (04:12):
What's it like to use turbo tax? Can you walk
us through? You open up the site, you start putting
in your information.
Speaker 3 (04:19):
I did some gonzo journalism last week and I did
my taxes. I am a TurboTax user, you know. I
just put on my W two from Bloomberg and they
scan it and they say, okay, here's the deductions you
should do. It's a very fast, streamlined process, and it's
very gamified.
Speaker 4 (04:34):
You know. Think about like if.
Speaker 3 (04:35):
You've shopped on Timu or scrolled on TikTok with all
these little like counters going like congrats, you're finishing your
taxes so quickly. You did such a good job. What's
funky about it is they just try to upsell you
like crazy. Right. There are many many screens that will
say things like, wait a second, do you want a
second pair of eyes on this?
Speaker 4 (04:53):
Do you want an expert to take a look? Did
you do this in the year? Oh? Do you want
audit protection?
Speaker 1 (04:59):
Right?
Speaker 4 (04:59):
These things that you.
Speaker 1 (05:01):
Don't even know to want that. No, until they suggest.
Speaker 4 (05:04):
That, I'm like, dog, do I need audit protection? Right?
You have this sense of wait a second, I probably
need this thing.
Speaker 3 (05:11):
That's a way that you end up paying when maybe
you actually didn't have to.
Speaker 1 (05:18):
This all raises a question, how did we end up
in a situation where the government knows what you owe,
but you might have to use a service like TurboTax
to figure it out. Brody says the government made a
conscious choice not to provide the service when it struck
up an agreement with private tax filing companies, a.
Speaker 3 (05:37):
Kind of non aggression pact between private industry and the government.
Was this thing called the Free File Alliance, where essentially
the government will not create a direct filing service as
long as these private tax companies think TurboTax, HNR, Block
tax Layer offer tax preparation for free to middle and
(05:58):
low income Americans, and they agreed that if you are
below this certain income threshold, you can get your taxes
for free. At the time, it was maybe seventy thousand,
you know, like a relatively kind of middle of the
road income, so a lot of people were included in
this makes sense fair enough that you know, okay, you
can have a functional monopoly in this as long as
(06:19):
you use the profits you get from the higher income
earners to subsidize the system for free for the middle
and low income lo and behold, only about four percent
of people ended up using the free service. And you
can debate why that is. The companies will say, because well,
they ended up wanting some of the more bells and
whistles on the paid version. What a horde of regulators
(06:41):
will say is because you designed the product in a
way that funneled people away from the free version to
the paid version, right, and regulators would say that they
would do things that really do not pass the smell test,
you know, like taking out advertisements that if you google
free taxes, the first result would be the pay aid version.
Rather than the actual free version you're looking for. Comedian
(07:04):
Hassama naj has a whole episode about this of just
trying to get the actual free version of turbo tax,
but it's just like felt nearly impossible.
Speaker 1 (07:12):
In Boom, we hit a paywall. We reached out into it.
The company that owns TurboTax. In response to the allegations
of upselling, they told us, quote, IRS Direct File is
a solution in search of a non existent problem. Today,
one hundred percent of Americans, regardless of income level or
how complex their taxes are, can file their federal and
(07:34):
state taxes completely free of charge. We are proud that
over the last decade, we've helped more than one hundred
and twenty four million Americans file their taxes completely free
of charge.
Speaker 3 (07:45):
I think it's a very interesting talking point they use
that essentially taxes are already free through our service, which
is only true if you didn't have certain complicated situations
like unemployment, income, student loan payments, owning a home. These
very common situations that make it that taxes are not free.
Speaker 1 (08:07):
And so they're saying tax preparation is free. We're offering
a better service for people that have these complicated needs.
Speaker 3 (08:16):
I think in a broader sense too, they just use
that kind of classic talking point of government is inefficient.
Government isn't going to be able to build this. Well,
we've spent X number of years building this software that
people by and large do find pretty streamlined and easy
to use. The government's going to end up spending all
this tax payer money to build something that already exists.
Speaker 4 (08:36):
You know, they're a prolific lobby year.
Speaker 3 (08:37):
They've spent almost fifty million over the last two and
a half decades.
Speaker 1 (08:41):
Critics of that lobbying include Senator Elizabeth Warren, who, in
a statement to Bloomberg earlier this year, called into its
actions an effort to quote try and stop free online
tax filing because they're terrified that the billions in profits
they make by scamming taxpayers are at risk. In response,
and into It spokesperson told Bloomberg that the IRS E
(09:02):
filing tool will quote cost taxpayers billions of dollars for
something already free of charge, and with potentially disastrous effects
on the finances of millions of Americans. It's worth noting
last spring, the IRS estimated that the pilot would cost
between around sixty four and two hundred and fifty million dollars,
depending on how many taxpayers use it at the end
(09:25):
of the day, whether it's due to lobbying or a
lack of political will to fund an IRS e filing
effort sooner. It's taken a really long time to get
any kind of alternative up and running.
Speaker 3 (09:36):
There was a conversation twenty years ago but whether the
government should build what is effectively a TurboTax competitor, And
now twenty five years later, we are just starting.
Speaker 4 (09:44):
To do that.
Speaker 1 (09:47):
So that brings us to today and this new pilot program.
How the government finally launched this free filing tool, and
how it's going after the break, we're back. After decades
of talk about the US government creating its own alternative
(10:09):
to private e filing services, it's finally happening, at least
for some Americans. How did the idea of a government
run direct file option get off the ground.
Speaker 3 (10:21):
There was a couple of large regulatory actions against TurboTax
that led them to pull out of this non aggression treaty,
this free file Alliance, this jargony thing that meant that
the private industry would agree to give taxes for free
to low income people, but in practice never really worked
and so eventually TurboTax pulled out of this system. They
just said, we're not doing this anymore. Same for H
(10:44):
and R Block and these are really the anchors of
that system. So the collapse of this is really what
led the government to say, hey, this program is not working.
We have some fresh funding from Congress towards the IRS.
Remember the Inflation Reduction Act. There was a large number
of funds that went there. They said, this is a
good moment to push forward and try to build this demo,
(11:07):
and it's actually come together quicker than many expected. They
expect that it could cover nineteen million taxpayers eventually.
Speaker 4 (11:16):
Right.
Speaker 3 (11:16):
They hope one hundred thousand people participate this season, which
is no small undertaking.
Speaker 1 (11:22):
To get a closer look at the new pilot tool,
I reached out to Aaron Slowey, who covers the IRS
for Bloomberg Industry Group.
Speaker 5 (11:28):
So it's only in twelve states. Most of those states
are states with no income tax. There's four that are
partnering with the IRS. I do have an income tax.
It's New York, Massachusetts, California, and Arizona. So that's like
location wise. The first requirement and then it's like low
and moderate income type of returns, So the simplest type
(11:50):
of returns, those are the people that are going to
be able to qualify. And the IRS said that on
purpose because it is in its pilot phase, so they
just want to test it out to see if this
is really going to work for people.
Speaker 1 (12:01):
So erin how does it work?
Speaker 5 (12:03):
So they actually did a demo with some reporters and
I was really surprised about how like the clean layout,
the way that it looked. You go on and they
actually first vet to see if your situation qualifies before
you even get started to use the pilot and then
after that you have to do a verification process and
after that is when you could start your direct file return.
(12:26):
And I heard it has taken as short as fifteen
minutes to file your returns through direct file. Wow, so yes,
it is a lot shorter than the average. Granted that
was one person filing a return. I think depending on
how prepared you are with your paperwork, it will just vary.
But so far the RS has said they've had a
lot of success with direct file.
Speaker 1 (12:46):
How is the IRS measuring the program success?
Speaker 5 (12:49):
As of mid March, they've had about fifty one thousand
people sign up to use direct file. Now, the caveat
with that is that not all those people have filed
their returns yet, so we'll see. I guess once tax
filing is using closes how many people actually file their
returns using direct file. But part of the battle that
the IRS is going to have is because they're keeping
it in such a limited size, both just limiting the
(13:11):
number of states and the type of tax situations that
can use direct file, Like, they aren't going to be
like look at the sheer number of people that used
this pilot. So I think the bottom line for the IRS,
I think they're going to wonder do people like it
and did it work? It seems like very fundamental questions,
but the like with the way that government run websites
(13:31):
have gone before, that's what they need to get answered.
Speaker 1 (13:34):
What do this program? Skeptics say?
Speaker 5 (13:37):
The two big skeptics are the Republicans and the tax
prep companies. People are really concerned about the cost. I
think there's a lot of fear just surrounding the IRS's reputation.
They don't want it to be an enforcer collector and prepare.
Speaker 1 (13:51):
The possible cost and the IRS's reputation aren't the only
challenges for the program. The pilot didn't launch until March,
which critics say was too late to capture many taxpayers
filing the season. Plus, as Brody points out, it's limited
in scope.
Speaker 3 (14:06):
Keep in mind it is only for federal returns, so
your state return you'll still have to do somewhere else.
Maybe you'll have to go crawling back to turbo tax.
So I mean the headline that into it would be
having their fingers crossed for is that nobody ends up
using it right right, And I mean that's a total possibility,
because at the end of the day, a big rule
in software is that people stick to what they know.
(14:27):
I think, if you've been filing your taxes a certain
way for a number of years, the odds of you
trying the experimental new method is pretty low. So I'm
really watching for adoption. I mean, do people actually use
this thing? Do we see some crazy complaints around, like, hey,
this messed up my taxes. I think a really famous
kind of government failure with technology was the Healthcare dot gov.
Speaker 1 (14:51):
Yeah, the Obamacare role. Yeah.
Speaker 3 (14:53):
I mean that is like one of those moments where
you know, people walked away and said Wow, maybe the
government can't build technology. And I think, you know, I've
seen some articles where people seem pretty rosy on the
new system, but if we have some situations like that,
it could really dent it in the future.
Speaker 4 (15:09):
Yeah.
Speaker 1 (15:09):
And since the government has promised and finally offered this
free tax filing service, how has TurboTax reacted?
Speaker 3 (15:16):
You know, so they say that, hey, this is a
non event to us, This is a very small shred
of you know, our user base.
Speaker 1 (15:25):
To that point into it told us, quote, IRS direct
file will not offer any improvement over filing options currently
available to and used by taxpayers, nor do we believe
it will have a material impact on the industry or
our financial results.
Speaker 3 (15:39):
But what it is to them is a long term risk, right,
because they rely on TurboTax as a kind of new
user pipeline and as a way to get data about
the way that taxes look and improve their product for others.
Speaker 4 (15:53):
The idea that.
Speaker 3 (15:54):
Nineteen million of that group are going to go over
to a free federal service, that is so and leah
risk to.
Speaker 1 (16:01):
Turbo tax and to its bottom line. Absolutely Thanks for
listening to the Big Take DC podcast from Bloomberg News.
I'm Sarah Holder. This episode was produced by Julia Press.
It was edited by Aaron Edwards and Laura Davison. It
was mixed by Ben O'Brien. It was fact checked by
Alex Sugia. Naomi Shaven is our senior producer. Michael Shepherd,
(16:24):
Wendy Benjaminson and Elizabeth Ponso provide editorial direction. Nicole beamsterbor
is our executive producer. Sage Bauman is Bloomberg's head of podcasts.
Please subscribe and review The Big Take DC wherever you
listen to podcasts. It helps new listeners find the show.
Thanks for listening. We'll be back next week.
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