Tax prep companies that spent over $90 million lobbying against free tax-filing system face new scrutiny

Tax prep companies that spent over  million lobbying against free tax-filing system face new scrutiny

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Leading tax prep companies have poured $90 million into lobbying on the Free File Program and other issues since the program’s inception in 2003, a new OpenSecrets analysis found.

Now the lobbying juggernauts are facing mounting scrutiny from members of Congress over their deployment of “revolving door” lobbyists in alleged attempts to undermine the federal government’s adoption of a government-run system that would allow taxpayers to file for free.

After years of lobbying and negotiations, a coalition of tax prep companies called the Free File Alliance reached a deal with the IRS to offer free tax prep services to a larger portion of taxpayers starting in 2003. The agreement, spearheaded by Intuit lobbyists, required companies to provide some tax filing services at no cost to certain individuals, those same companies could still charge for ancillary services and other tax-filing products.

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As a part of the public-private partnership, the IRS promised not to develop its own tax prep software or e-filing services. However, a December 2019 addendum to the alliance’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 barred tax prep companies in the alliance from blocking Free File Internet search results. The change came shortly after ProPublica reported that tax prep companies in the alliance lured tax filers away from free tax filing options by hiding their Free File options from Google results and instead directing users to paid products – including products marketed as “free” that allegedly tricked clients into paying.

Since then, multiple companies have pulled out of the agreement with the IRS, including H&R Block in 2020 and Intuit in 2021.

While both leading tax prep companies have continued to spend heavily on lobbying, federal government efforts to roll out a government-run free tax filing system are moving forward – albeit not without some pushback.

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After President Joe Biden’s December 2021 Executive Order instructed Treasury Secretary Janet Yellen to consider “expanded electronic filing options,” Yellen testified before the Senate Finance Committee that building a free direct filing service is “definitely a priority.” The Inflation Reduction Act of 2022 allotted $15 million for the IRS to explore the creation of a free federal tax filing service.

In May, the IRS released a report announcing plans to launch the pilot program for the 2024 tax filing season and indicating that most U.S. taxpayers are interested in filing their taxes directly to the IRS for free.

But in June, Republicans on the House Appropriations Committee proposed a budget rider that would bar the IRS from using federal government funds to create a government-run tax preparation software, unless approved by the House and Senate’s appropriations committees.

The IRS report and pilot program have also faced fierce opposition from tax prep companies.

“An IRS Direct File system is redundant and will not be free — not free to build, not free to operate, and not free for taxpayers,” Intuit spokesperson Derrick Plummer told ABC News.

The Intuit spokesperson further told AP that the report “cherry-picks data to support its flawed conclusion,” noting the study found that only 12% of taxpayers said they would use a government-run system if state tax returns are not included in the program.

On Aug. 23, Elizabeth Warren (D-Mass.) and Rep. Katie Porter (D-Calif.) sent letters to Intuit, H&R Block, the Free File Alliance and 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.

Warren and Porter gave the organizations until Sept. 6 to provide additional information about the tax prep industry’s lobbying activities and revenue.

The American Coalition for Taxpayer Rights spent $150,000 on federal lobbying during the first half of this year, a smaller sum than the leading tax prep companies but outpacing any of its prior years and putting it on track for another record-setting year. The coalition spent $80,000 of that on federal lobbying in the second quarter of 2023 with $50,000 of that going to Brownstein Hyatt Farber Schreck, which started lobbying for the coalition May 1.

In 2022, the coalition spent $260,000 on federal lobbying — the most it has spent any year other than the $265,000 it spent the year it launched.

There is no record of federal lobbying by the Free File Alliance and its executive director, Tim Hugo, told AP that his organization “does not lobby, does not hire lobbyists, has not hired lobbyists in the past, and has never had a PAC.”

This is not the first time congressional Democrats have scrutinized the tax prep industry’s lobbying activities.

In 2022, several members of Congress called for probes into the company’s deployment of revolving-door lobbyists who previously held government positions, citing investigative reporting by OpenSecrets and ProPublica.

After OpenSecrets’ March 2022 reporting on Intuit’s lobbying in Washington, Warren sent another letterto Intuit’s CEO accusing the company of “extensive lobbying and adroit influence peddling.”

In a June letter, Warren, Porter and Brad Sherman (D-Calif.) further called on federal inspector general offices to investigate Intuit’s “use of the revolving door to influence policy decisions” and the “extent to which Intuit — and other Free File Alliance members — have used the revolving door to exert undue influence on department and agency policies, particularly Free File.”

Intuit has also taken heat from the Federal Trade Commission, which filed a complaint in 2022 accusing Intuit of deceptively advertising their paid tax preparation services as free filing.

On Wednesday, an administrative judge inside the agency ruled against Intuit but the ruling will remained sealed until Sept. 6, pending redactions, Politico reported.

“We expect to appeal this decision to the FTC Commissioners and, if necessary, then to a federal court of appeals. We intend to continue to defend our position on the merits of this case,” Intuit wrote in its annual SEC filing filed Friday.

Even amid the scrutiny, tax companies continue to reap the profits of the current system.

On Aug. 23, Intuit announced its total revenue was $12.7 billion for the 12-month fiscal year ending June 31, up 32% from the prior year. H&R Block reported $3.5 billion in revenue during its own 12-month fiscal year ending June 30, a more modest increase of about $9 million — or 0.3% — from the prior year.

Over the two decades since Free File launched, Intuit has poured over $43.3 million into federal lobbying while H&R Block spent nearly $42 million.

Intuit, the company that owns TurboTax, has spent more than $1.8 million on federal lobbying in the first half of 2023, outpacing any prior year. H&R Block spent more than $1.5 million on federal lobbying during the same period.

Editor’s note: This article was updated to reflect information Intuit’s annual SEC filing, which was posted after publication.

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