IRS drops a long-standing promise not to compete against TurboTax

The new Internal Revenue Service agreement with the tax software industry prohibits companies from hiding their free options from search engines and offers the IRS the option of offering proprietary tax return software in competition with TurboTax. That does not mean that the IRS will offer its own software, but the agency has officially withdrawn its promise not to compete against the industry.

As ProPublica reported in April 2019, TurboTax maker Intuit used a robots.txt file to “intentionally hide the free file page from search engines.” TurboTax then changed the code on the Free File page so that it would no longer be hidden from Google and other search engines, but at least five US states opened investigations into TurboTax’s marketing and offering free tax programs. H&R Block also hid its free tax search for Google search using the same method, ProPublica reported at the time, but H&R Block seems to have lifted that restriction based on searches we conducted today.

With the industry under legal pressure, the IRS has extracted new promises from Free File, an industry consortium that represents Intuit, H&R Block and other makers of tax preparers. The changes were announced by the IRS on December 30 and placed in an addendum to the 18-year agreement for IRS / Free File that requires free services for low and medium-income incomes.

Free tax preparation available for 70% of the US.

Free File Programs offer free tax preparation software for people with an income below $ 69,000 (about 70 percent of the US population) and free “fillable forms” for people who earn more. The industry has offered free services in exchange for the IRS pledge not to compete against them – but that pledge has now disappeared.

Earlier, the memorandum of understanding between the IRS and the industry said that “In recognition of this commitment (to provide free archiving services to low-income taxpayers), the federal government has committed not to enter the tax return software and the e-file services market ” The new addendum says that the phrase “hereby removed” from the agreement.

The addendum also states that pre-tax companies are “forbidden to engage in practices that lead to the member’s free file’s landing page being excluded from an organic search on the Internet.”

The cancellation of the promise of the IRS not to compete against the industry allows the IRS to offer its own free tax authorities. The IRS has not announced any plans to do so, but the change could put more pressure on software makers to meet the full terms of their deal with the government.

We asked the IRS today if it is planning to offer its own tax preparation software, but a spokesperson said the agency had no further comments than the ones announced.

The IRS’s own advisory board criticized it in November 2018 for “insufficient supervision” of the Free File program, putting “vulnerable taxpayers at risk.”

TurboTax is not forced to return all the money it charged to people who were eligible for free tax returns, but some customers could get a refund by calling the company.

Intuit says it does not object to changes

Intuit said in a blog post that it “strongly supports these changes to the Free File program and associated Free File offers because they increase the focus on the taxpayer experience.” Intuit said that his “search and marketing practices already meet the new addendum requirement,” although that is only because Intuit changed its practices last year.

Intuit also said it has no objection to removing the IRS promise not to offer its own software. Intuit wrote:

An original objective of the Free File program was to encourage private investment in technology and services to achieve IRS goals, namely increasing e-filing. With around 90 percent of taxpayers’ e-archives today, the language is no longer relevant and is not a prerequisite for Intuit’s continued participation in the Free File program. Program critics were convinced that this language was the only thing that prevented the IRS from offering tax preparation software and assistance, and that companies only participated in Free File in exchange for this promise. That is wrong, and we support the removal of the language that caused this confusion. We have faith in our exceptional product and are participating in the Free File program to give eligible taxpayers another option to file their taxes for free.

Despite Intuit’s claim, the company and other makers of tax return software lobbied for legislation that would have prohibited the Internal Revenue Service from offering a free option for tax return online. The Ways and Means Committee of the House of Representatives approved such a ban in April 2019, but legislators later withdrew that proposal.

In addition to the new requirement for search visibility and the abolition of the IRS pledge not to compete against the industry, the addendum also contains a number of obligations to ensure that companies make free submission options available to eligible consumers. Here are a few highlights:

• Companies must standardize the names of their free offers so that taxpayers can easily find them through organic searches. Companies must refer to their free service as: “IRS Free File program provided by (company name or product name of the member).”
• Business websites should provide taxpayers with a link to the IRS Free File website “at the earliest possible moment in the preparation process if they do not qualify for the (business) file offering (for free).”
• Companies must implement new procedures to check that returns submitted to the IRS with the free file indicator “have absolutely no costs associated with the preparation and e-file of the federal return”.
• Each company must examine a random selection of taxpayers who use the free archiving service about their customer experience and satisfaction, and provide quarterly and annual reports to the tax authorities.
• Companies must use independent auditors to review their websites and provide the overall findings of the auditor to the IRS.

IRS commissioner Chuck Rettig said the changes “will make the free file stronger and give taxpayers another reason to consider this valuable software option.” The IRS and the industry will continue to work together to “help low-to-medium income taxpayers and to pursue meaningful opportunities to raise taxpayers’ awareness and use of the free file program after the 2020 archiving season,” Rettig also said .