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1 1 (February 7, 2024)

handle is hein.crs/goveogq0001 and id is 1 raw text is: Congjressional ____ ~ ~Research Service The IRS's Free Direct Filing Pilot Program Updated February 7, 2024 Individuals may satisfy their income tax obligations by filing a paper return or filing an electronic one (e- filing). To e-file, a taxpayer must use software preapproved by the Internal Revenue Service (IRS). Most individual returns are e-filed. For the 2022 tax year (through December 29, 2023), the IRS received 162 million returns, 93% of which (150 million) had been e-filed. Professional preparers submitted 57% of the e-filed returns and self-preparing individuals the other 43%. Historically, the IRS has provided taxpayers with several options for free e-filing, but those options did not include e-filing directly with the IRS through a secure portal on its website, an option known as Direct File (DF). As a result of several recent developments, a DF option is now available as a pilot program during the 2024 filing season. This Insight describes how the pilot DF system came to be and how it is intended to work. Emergence of An IRS Direct-File Option The IRS's efforts to create a DF system go back to the early 2000s. The initial attempt was a response to a 2001 directive from the Office of Management and Budget to expand e-filing as part of an effort to increase the range of online federal government services. In 2002, concerned about the cost of developing and maintaining a DF system and facing opposition in Congress to such an initiative, the IRS formed a partnership with a number of commercial tax preparation firms to provide free tax preparation and e-filing to lower-income taxpayers through a program known as Free File. Under the agreement establishing the program, member companies were to provide free e-filing to eligible taxpayers through their online platforms, and in return, the IRS would refrain from developing its own DF system. This restriction lasted from 2003 until 2019, when it was dropped from the memorandum of understanding governing the Free File program. There were several reasons for this decision. Historic usage rates for the program had ranged from 3% to 4% of eligible taxpayers. The IRS invested little in promoting and policing the program. Some media reports in 2019 revealed that some member companies had been diverting Free File-eligible taxpayers to the companies' paid filing services. Interest in the IRS providing a 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 a second report. Congressional Research Service https://crsreports.congress.gov IN12270 CRS INSIGHT Prepared for Members and Committees of Congress

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