AMERIKANS SAY; TAXATION IS THEFT
INTERNATIONALISTS SAY; PROPERTY IS THEFT
Anna Massoglia, OpenSecrets
November 4, 2023
J. D. Montgomery holds a sign on the street outside of the James C. Corman Federal Building encouraging motorists to express their anger at the Internal Revenue Service (IRS) in Van Nuys, Calif.
November 4, 2023
J. D. Montgomery holds a sign on the street outside of the James C. Corman Federal Building encouraging motorists to express their anger at the Internal Revenue Service (IRS) in Van Nuys, Calif.
David McNew/Getty Images
New legislation could throw a wrench in IRS plans to launch a free government-run tax filing program after millions of dollars in lobbying by for-profit tax prep service providers.
On Monday, newly-minted House Speaker Mike Johnson (R-La.) introduced a bill making $14.3 million in aid to Israel contingent on reducing funding for the IRS. The Inflation Reduction Act of 2022, which President Joe Biden signed into law last year, set $15 million aside for the IRS to develop the free service. Leading for-profit tax prep companies oppose the program.
While Johnson framed the proposed cut as an attempt to offset the cost of the military aid package and reduce the national debt, a new report from the Congressional Budget Office found that defunding the IRS would actually increase the federal deficit by $12.6 billion over the next decade.
The House is expected to vote on the legislation this week.
But Senate Democrats, who hold a narrow majority in the chamber, have called the bill a “non-starter.” The White House has also promised to veto the bill, favoring a joint package with military aid for both Israel and Ukraine.
Still, IRS cuts could resurface in future proposals to send military aid to Ukraine — a priority for Democrats who need buy-in from Republicans.
The proposal to use IRS funds to cover military aid to Israel is new, but it follows a multiyear fight pitting the IRS against for-profit tax prep companies as the industry makes billions of dollars helping Americans file taxes each year. Tax prep companies in turn pour millions back into lobbying to preserve the status quo.
The tax prep services industry has poured over $90 million into lobbying on the Free File Program and other issues since the program’s inception in 2003, a new OpenSecrets analysis found.
Intuit, the company that owns TurboTax, and H&R Block lead in lobbying spending but are bolstered by groups like the American Coalition for Taxpayer Rights, a tax prep, software and financial services trade association whose members include Intuit, H&R Block, Jackson Hewitt, TaxSlayer and Liberty Tax Services.
Intuit spent about $2.8 million on federal lobbying in the first three quarters of this year, outpacing the prior year and putting the tax prep company on track for a new record.
The TurboTax parent company — which also owns QuickBooks and Credit Karma — spent $910,000 on federal lobbying in the third quarter of this year alone, new lobbying filings show. The company spent nearly $3.3 million on federal lobbying in 2021 and another $3.5 million in 2022.
"Intuit strongly believes in advocating on behalf of its customers. As our business grows so does our engagement and education of policymakers on various issues, from AI and innovation that benefits individuals and small businesses to stronger consumer protections and tax simplification,” an Intuit spokesperson told OpenSecrets.
New legislation could throw a wrench in IRS plans to launch a free government-run tax filing program after millions of dollars in lobbying by for-profit tax prep service providers.
On Monday, newly-minted House Speaker Mike Johnson (R-La.) introduced a bill making $14.3 million in aid to Israel contingent on reducing funding for the IRS. The Inflation Reduction Act of 2022, which President Joe Biden signed into law last year, set $15 million aside for the IRS to develop the free service. Leading for-profit tax prep companies oppose the program.
While Johnson framed the proposed cut as an attempt to offset the cost of the military aid package and reduce the national debt, a new report from the Congressional Budget Office found that defunding the IRS would actually increase the federal deficit by $12.6 billion over the next decade.
The House is expected to vote on the legislation this week.
But Senate Democrats, who hold a narrow majority in the chamber, have called the bill a “non-starter.” The White House has also promised to veto the bill, favoring a joint package with military aid for both Israel and Ukraine.
Still, IRS cuts could resurface in future proposals to send military aid to Ukraine — a priority for Democrats who need buy-in from Republicans.
The proposal to use IRS funds to cover military aid to Israel is new, but it follows a multiyear fight pitting the IRS against for-profit tax prep companies as the industry makes billions of dollars helping Americans file taxes each year. Tax prep companies in turn pour millions back into lobbying to preserve the status quo.
The tax prep services industry has poured over $90 million into lobbying on the Free File Program and other issues since the program’s inception in 2003, a new OpenSecrets analysis found.
Intuit, the company that owns TurboTax, and H&R Block lead in lobbying spending but are bolstered by groups like the American Coalition for Taxpayer Rights, a tax prep, software and financial services trade association whose members include Intuit, H&R Block, Jackson Hewitt, TaxSlayer and Liberty Tax Services.
Intuit spent about $2.8 million on federal lobbying in the first three quarters of this year, outpacing the prior year and putting the tax prep company on track for a new record.
The TurboTax parent company — which also owns QuickBooks and Credit Karma — spent $910,000 on federal lobbying in the third quarter of this year alone, new lobbying filings show. The company spent nearly $3.3 million on federal lobbying in 2021 and another $3.5 million in 2022.
"Intuit strongly believes in advocating on behalf of its customers. As our business grows so does our engagement and education of policymakers on various issues, from AI and innovation that benefits individuals and small businesses to stronger consumer protections and tax simplification,” an Intuit spokesperson told OpenSecrets.
The company lobbied for "intellectual property protections" as well as "AI and innovation to benefit consumers and small businesses," according to Intuit’s most recent lobbying disclosures, which cover activity during the third quarter of 2023. Intuit lobbyists also reported advocating for "consumer and small business prosperity related to data privacy.”
Over the two decades since the launch of the IRS Free File program, Intuit has poured over $46.2 million into federal lobbying, an OpenSecrets analysis found.
The Free File Alliance, a coalition of tax prep companies, reached a deal with the IRS in 2003 to offer free tax prep services to a larger portion of taxpayers.
The deal, negotiated by Intuit lobbyists, required companies to provide some tax filing services at no cost to certain individuals but also allowed those same companies to charge for other tax-filing products.
In turn, the IRS promised not to develop its own tax prep software or e-filing services. But a December 2019 addendum to the public-private partnership’s original memorandum of understanding lifted that restriction, despite tax prep companies spending heavily on lobbying to bar the government from creating its own e-filing software.
The December 2019 addendum also prohibited companies in the alliance from thwarting Free File internet search results.
Multiple companies have since pulled out of the agreement with the IRS, including Intuit in 2021 and H&R Block in 2020.
The lobbying intensified following passage of the Inflation Reduction Act and a December 2021 executive order instructing Treasury Secretary Janet Yellen to consider “expanded electronic filing options,” spurring the development of Direct File, a pilot program to provide government-run tax filing services.
“Direct File is not free tax preparation, but rather a thinly veiled scheme where billions of dollars of taxpayer money will be unnecessarily used to pay for something already completely free of charge today – free to the taxpayer and actually free for the government,” an Intuit spokesperson told OpenSecrets. “The Direct File scheme is a solution in search of a problem, and that half-baked solution now has the potential to become a financial nightmare for tens of millions of taxpayers.”
“Direct File is asking Americans to file their taxes directly with the IRS after the organization publicly acknowledged systemic inequities that see low-income filers and Black taxpayers targeted for audit at a higher rate than non-Black taxpayers,” the Intuit spokesperson added, referencing a recent Stanford University study that found Black taxpayers are audited at a higher rate than non-Black taxpayers. After pressure from lawmakers, the IRS acknowledged the study’s findings in May and committed to “doing the work to understand and address any disparate impact of the actions we take.”
Despite the tax prep companies’ heavy lobbying spending, the IRS plans to launch the pilot program next year.
The agency announced in October that the initial rollout will be limited to taxpayers in 13 states with relatively simple returns and specific income types but indicated that the program’s scope could change.
According to the IRS, four of the 13 states — Arizona, California, Massachusetts and New York — will adopt the Direct File program for both state and federal taxes while residents in nine other states that don't have an income tax may also be able to participate in the pilot for federal taxes.
Taxpayers in other states — or whose filing needs are more complex, such as contractors — will not qualify for the services in 2024.
While the pilot program will only cover some taxpayers, a wider rollout could threaten the primary source of tax prep companies’ revenue. In August, Intuit announced that its annual revenue was over $14.3 billion for its 2023 fiscal year, which ended July 31, 2023 — a 13% increase from 2022.
H&R Block’s annual revenue was around $3.5 billion for its 2023 fiscal year, which ended June 30, representing a more modest increase of $9 million — or 0.3% from the prior year.
OpenSecrets is a nonpartisan, independent and nonprofit research and news organization tracking money in U.S. politics and its effect on elections and public policy.
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