Learning Center
We keep you up-to-date on the latest tax changes and news in the industry.
The Battle Over Free IRS E-Filing: Pros and Cons
Recently – particularly since the agency received $80 billion in additional funding as part of the Inflation Reduction Act – the Internal Revenue Service (IRS) has been considering the implementation of a revamped free e-file tax product to simplify the tax-filing process, particularly for low-income taxpayers.
The U.S. Government Accountability Office (GAO) notes that fewer than 3% of taxpayers use the IRS's existing free file service, which is limited in its scope and typically is not an option for those who work in the gig economy, own cryptocurrency, or have other complex tax issues. While the proposal to redevelop the current system may seem like a step in the right direction, it has ignited a fierce debate within the financial and tax preparation industries.
The Pros of Free E-File Tax Tools
Accessible Benefits For Low-Income Taxpayers
Proponents of the free e-file tax tool argue that it could greatly benefit low-income taxpayers who qualify for various financial benefits, including valuable tax credits. These individuals often rely on the tax filing system to access credits that could amount to thousands of dollars. Unfortunately, many tax preparers without formal training may miss out on these benefits, potentially costing taxpayers more than the price of professional tax preparation.
Challenging this, however, is a ProPublica report that notes “free” tax software like Intuit’s TurboTax, which sometimes charges taxpayers who have complicated returns, relies heavily on minority communities at tax time. “The fact of the matter is that the industry is targeting black and brown communities trying to stoke fear of a direct file tool,” said Brandon Tucker, senior policy director of Color of Change, a racial justice organization that supports direct file.
“Black people are critical to their [TurboTax’s] profit margins,” he told ProPublica.
Protection From Potentially Predatory Practices
Some firms that offer free tax preparation services may even profit by selling taxpayer information, while scammers may use the guise of free services to steal taxpayer identities.
In one situation in January of this year, for example, a tax preparer was sentenced to federal prison for reporting false earnings, fraudulent charitable contributions, and ineligible tax credits to increase their clients' refunds.
At the time, Special Agent in Charge Ramsey E. Covington of IRS - Criminal Investigation's Houston Field Office urged Americans to be vigilant, "These three tax preparers not only betrayed the trust of their clients, who counted on them to prepare accurate returns, they betrayed the trust of all taxpaying Americans."
“I implore all taxpayers who plan to hire a third-party to prepare and file their tax return to choose their preparer wisely and ask questions before and during the preparation process," he continued.
Those who support the IRS’s proposed new e-file system believe that issues like this would be largely mitigated by its existence.
The Cons of Free E-File Tax
Tools Lack of Oversight
Critics of the proposed free e-file tool raise several valid concerns. First, individuals providing low-cost tax preparation services are often not licensed or registered, potentially lacking the background checks required for tax preparers. While the system would, in theory, be designed for taxpayers to file their own taxes, it is likely that many would still use a tax preparer who would then submit a return on their behalf. This could potentially expose taxpayers to preparers who might engage in fraudulent practices.
Expertise and Evaluation
Additionally, charitable organizations advocating for free tax prep for low-income taxpayers often focus solely on the "free" aspect, failing to address the potential pitfalls. The IRS has explored the idea of preparing low-income taxpayers' returns and giving them the option to accept or reject the results, but this approach poses challenges. Taxpayers may lack the expertise to determine if the IRS's offer provides the best outcome.
Furthermore, as the AP noted in July 2023, this would require legislation – which has been proposed – to prevent the tax collector (the IRS) becoming the tax preparer, an obvious conflict of interest.
E&O Insurance and Error Protection
Most reputable, professional tax preparers carry errors and omissions (E&O) insurance, offering taxpayers a level of error protection not available through free preparation services. For decades, companies like Intuit, the maker of TurboTax, have worked tirelessly to prevent the introduction of a free, government-funded online tax filing tool.
Their lobbying efforts in Washington, D.C., are evident, with 63 lobbyists working this year alone to influence policymakers, per the AP’s report. At this time, it is unconfirmed if a government-backed free tax filing system would offer greater protection for taxpayers in this area.
The debate surrounding free e-file tax tools remains a contentious issue, with advocates emphasizing accessibility for low-income taxpayers and critics underscoring potential pitfalls. As the IRS continues to explore this concept, the battle over free tax filing tools is far from over, and its outcome will shape the future of tax preparation in the United States.
While both sides have valid arguments, finding a solution that balances accessibility, taxpayer protection, and fiscal responsibility remains a major challenge. The coming years will likely see continued discussions and decisions that could reshape how Americans file their taxes for decades to come.
Want our best tax and accounting tips and insights delivered to your inbox?
Sign up for our newsletter.
Benefits of having a business advisor
Your CFO, Reimagined as a Financial Doctor
Diagnosing root causes, prescribing solutions, and guiding your property business toward long-term wealth.
Our CFO | Advisor
Raquel is a passionate business owner. Now, she is returning to her grassroots with a twist - guiding clients with her expertise as a CPA, she can advise your company as your trusted CFO and Advisor.
-
Raquel Deodanes, MS, CPA
Co-Founder✅ CPA with Real-World Experience – I help property managers stay profitable, tax-efficient, and cash flow positive.
✅ Tax Strategist – Former advisor at California’s revenue agency.
✅ Trusted by 4,000+ Businesses – Experience across CA, FL, TX, NV, and beyond.
✅ Real Estate Investor – I understand the financial realities of property management.
✅ Entrepreneur – I’ve built businesses and know the challenges you face.
Frequently Asked Questions
-
We diagnose financial inefficiencies, treat problems like poor cash flow or rising costs, and guide you to long-term financial health. That includes cleaning up your books, forecasting cash flow, optimizing operations, and helping you grow your portfolio with confidence — just like a doctor builds a custom care plan for a patient.
-
Bookkeepers record transactions. CPAs file your taxes. We connect the dots — helping you understand your numbers, strategically improve them, and make smarter decisions throughout the year. We work alongside your existing team to drive performance, not just compliance.
-
If you're unsure where your cash is going, struggling with rising costs, planning to scale, or just tired of reacting instead of planning — now is the right time. We help you get ahead of problems, not just clean up after them.
-
Clients typically see improved cash flow, cleaner books, higher NOI, better financial reporting, and a lot less stress at tax time. More importantly, you gain clarity, confidence, and control over your business — and a partner who helps you grow it.
Pricing
Painless, transparent pricing.
Let us take away your stress and give you back your time. Choose your perfect package today.
Base
-
Dedicated finance expert
-
Bookkeeping with accrual basis
-
Includes P&L, balance sheet, and cash flow statements
Core
-
Includes everything in Base, PLUS
-
Industry KPIs and financial ratios
-
Monthly virtual 1-hr meetings
-
Monthly rolling budget forecasts
Growth
-
Includes everything in Base, CORE
-
Budget vs. actuals variance analysis and review
-
Payroll and HR Platform