According to a report by the Treasury Inspector General for Tax Administration (TIGTA) the US Internal Revenue Service (IRS) needs to enhance the Free File Programme to ensure better oversight and boost participation on 30 September 2024.
What TIGTA FoundÂ
In its report, the TIGTA said the IRS does not have sufficient oversight of the Free File Programme partners to ensure that they are meeting all requirements to protect tax return data from unauthorised disclosure for taxpayers filing returns through the Free File Programme. Several companies have been sanctioned by the Federal Trade Commission for unauthorised disclosure of taxpayer information while also participating in the IRS Free File Programme.
However, IRS Free File Programme management has noted that they would not consider allegations of wrongdoing as a reason to remove a partner programme. The management also noted that the IRS has never exercised its right to remove a partner.
In addition, the IRS’s oversight actions relating to privacy and security are limited. The IRS Free File Programme team is not reviewing the privacy disclosures of its participating partners to determine if those disclosures comply with what is authorised by Internal Revenue Code § 7216.
Moreover, while eligible taxpayers exercise their right to choose an option to electronically file, the IRS has not implemented any effective solutions to increase taxpayer participation in the Free File Programme.
An analysis of individual tax returns filed during Processing Years 2020 through 2024 confirmed that on average, only 3% of the eligible taxpayer population are using the Free File Programme. TIGTA continues to find that despite the IRS’s efforts, there is little impact made on the usage of the Free File Programme.
Finally, additional actions need to be taken to fully address prior concerns reported by TIGTA. For example, the IRS needs to ensure that its provision testing addresses compliance with all Memorandum of Understanding requirements for participating partners
TIGTA’s Recommendations
TIGTA made seven recommendations that will help the IRS improve its oversight of and increase participation in the programme.
These recommendations include: determining if any Program partners have been identified or sanctioned for an unauthorised disclosure of taxpayer information; annually reviewing Free File Program partners’ privacy disclosures and taxpayer consents to ensure compliance with regulations; and, determining if the IRS can request that Free File Program partners participate in a shared responsibility of promoting the programme.
The IRS agreed with six recommendations and plans to determine if partners have been sanctioned for unauthorised disclosures and review partners’ privacy disclosures and taxpayer consents as part of its Free File Pre-filing Season Checklist.
However, the IRS disagreed with determining whether it can request Free File partners to participate in the shared responsibility of promoting the Program. TIGTA believes that shared responsibility promoting the Free File Programme aligns with the intent of the original Free File agreement, signed in 2002.
Recommendation 1: At the start of each filing season, determine if any Free File Programme partners have been identified or sanctioned for unauthorised disclosure of taxpayer information and document actions taken to mitigate the potential risk to the Program.
Recommendation 2: Identify IRS personnel with the appropriate technical expertise to review the participating partners’ privacy disclosures and taxpayer consents each filing season to evaluate whether the format and content of written consents complies with Treas. Reg. 301.7216-3 and other IRS guidance.
Recommendation 3: Evaluate the feasibility of using additional avenues (such as letters, text messaging, and e-mails) to reach eligible Free File Programme taxpayers. This should include determining if any of these avenues can be associated with increased participation
Recommendation 4: Identify and incorporate appropriate qualitative and quantitative measures into the Free File Programme communication plan that allow for evaluating the effectiveness of outreach efforts.
Recommendation 5: Consult with the IRS Office of Chief Counsel to determine if the IRS can request the Free File Program partners to share responsibility for promoting the Program. If they can, the IRS should negotiate the terms with its Free File partners and revise the MOU accordingly.
Recommendation 6: Allocate funding to promote the Free File Programme.
Recommendation 7: The Chief of Taxpayer Services, should develop a comprehensive MOU provision testing plan that ensures that all sections of the MOU (and addendums, as applicable) are being addressed each filing season. This should include noting which provisions cannot be reviewed along with an explanation why.
