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1 1 (October 30, 2023)

handle is hein.crs/govenia0001 and id is 1 raw text is: Congressional ____ ~ Research Service Current Status of an IRS Free Direct Electronic Filing Option October 30, 2023 Individuals have two options when they file a federal income tax return and related forms: a paper return or an electronic return. Electronic filing (e-filing) involves preparing a return using software preapproved by the Internal Revenue Service (IRS) and submitting it to the IRS electronically. In the 2021 tax year, 95% (147.2 million) of individual income tax returns were e-filed; paid professional preparers submitted 57% of e-filed returns and self-preparing individuals the other 43%. The IRS provides several options for free e-filing (e.g., the Free File and the Volunteer Income Tax Assistance programs), but it does not allow taxpayers to file directly with the IRS through a secure portal on its website, an option known as Direct File (DF). This Insight examines the current status of the IRS's efforts to develop a DF system. Interest in an IRS Direct-File Option The IRS looked into creating a DF system in 2001 in response to a directive from the Office of Management and Budget to offer such a service to taxpayers. In 2002, concerned about the cost of and political opposition to providing free direct tax filing, the IRS entered into a partnership with a number of commercial tax preparation firms to provide free tax preparation and e-filing to low- to medium-income taxpayers through a program known as Free File. In return, the IRS agreed to refrain from developing a competing DF option. This limitation lasted until 2019, when it was dropped from an extension of the memorandum of understanding governing the Free File program. There were several reasons for its disappearance. Usage rates for the program averaged 3% to 4% of eligible taxpayers. The IRS invested little in promoting and policing the program. Media reports in 2019 revealed the efforts of some Free File member companies to divert Free File-eligible taxpayers to the companies' paid filing services. Interest among some lawmakers in the IRS establishing its own DF service seems to have grown since 2019. The Inflation Reduction Act (IRA, P.L. 117-169) provided the IRS with $15 million to create a direct e-file task force and deliver two reports to Congress by May 16, 2023. The task force was to prepare one report, and an independent third party chosen by the IRS was to prepare the second report. Congressional Research Service https://crsreports.congress.gov IN12270 CRS INSIGHT Prepared for Members and Committees of Congress

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