The Treasury Inspector General for Tax Administration (TIGTA) had nothing good to say about the IRS Free File Program, reporting that taxpayers are barely aware that the program exists, and that even those who are aware of it encounter a confusing, overly complex program with poor department oversight. 

The Free File Program is a public-private partnership between the IRS and the major tax software companies to provide free online federal tax preparation and electronic filing to taxpayers making under $69,000 per year. In return for providing this free service, the IRS promises not to enter the tax preparation and e-filing market directly. While this arrangement should ostensibly allow millions of people access to free filing, TIGTA noted that out of the 104 million who qualify, only a fraction, 2.5 million, actually take advantage of it. In contrast, 34.5 million people who qualified for free filing still paid firms within the public-private partnership to do their taxes. 

TIGTA said one reason for this disparity is a rule stated by management of both the IRS and Free File Alliance (a coalition of private firms that offer free filing options) that the free file option can be accessed only through IRS.gov. If someone goes instead through, a private tax firm, then that person is not guaranteed a free return filing. But TIGTA said that this rule is not referenced or included in any of the memorandums of understanding (MOU) between the IRS and the firms outlining how the program would work. 

"Thus, eligible taxpayers with the same tax situations have different experiences filing their returns and may be charged a fee based solely on whether they access a member’s website through IRS.gov or through an Internet search," said TIGTA. 

However, even if taxpayers are aware of these rules, TIGTA said they're still faced with "a myriad of differing participation requirements from the 12 [Free File Inc.] members." Going through the IRS website, taxpayers must review the criteria for each firm's offer, which can encompass age, state, income, whether they're in the active military, whether they have a foreign address, whether they qualify for the earned income tax credit (EITC), or more. Even then, after all that, the taxpayer can still be denied by the firm based on factors such as specific types of income reported, or forms and schedules the taxpayer needs to complete their return.

"For example, the taxpayer could meet the initial qualifications and requirements of an FFI member on IRS.gov, but has retirement income or student loan interest, which the taxpayer inputs in the member’s software," said TIGTA. "Once input, the retirement income and/or student loan interest is secondary criteria that the member does not disclose to the taxpayer and uses to charge a fee for e-filing the return." From there, the taxpayer goes back to IRS.gov and starts the whole process over again, or, more likely according to TIGTA, the taxpayer just gets frustrated and opts to use the pay service instead. TIGTA suggested that software firms do not disclose all their exclusionary criteria on the IRS website specifically to create this effect. 

TIGTA also noted that the program itself is underpromoted, and that its marketing budget since 2014 has been $0.00, a dramatic decline from the $750,000 to $1.5 million yearly promotion budget it had prior to that. IRS management said it instead tries to promote the program via press releases and social media. What's more, TIGTA echoed the findings in a Pro Publica report that the some private firms involved in the program intentionally hid their program to ensure that those searching for it online would not find the web page. 
 
TIGTA examined the coding of all 12 FFI members' Free File web pages linked from IRS.gov and found that "for three members, we were unable to obtain a historical copy of their Free File web page that was in use during Calendar Year 2019," and "our review of the remaining nine members’ Free File web pages identified that five had coding that prevented Internet search engines from displaying the web page in search results." 

When TIGTA went to the IRS with these results, "they stated that the members’ actions do not violate provisions in the MOU, and IRS.gov is returned at the top of the list in Internet search results." While TIGTA agreed that, technically, there's nothing in the agreement saying that members can't do that, "this practice contravenes the intent of the Free File Program, which is to offer free tax preparation and e-filing to taxpayers least able to afford these services."

TIGTA also blasted the IRS for lack of sufficient oversight of the program. For example, while firms in the program have several requirements like offering the same tax forms and schedules as offered in their basic commercial software, TIGTA said that in 2019, four of these requirements weren't tested and five were tested inadequately. 

The IRS had a mixed response to TIGTA's recommendations. It agreed to develop a comprehensive communications and outreach plan, establish a process to assess who qualifies, ensure quality reviews of the program, better inform taxpayers of their rights and protections, develop a way for taxpayers to provide feedback, and work with the firms to conduct customer satisfaction surveys. 

At the same time, the IRS said it has "seen no evidence of additional criteria being used to charge taxpayers," although it would look into it, and that while it would expand testing criteria for two of the program's requirements, the remainder require additional review to determine feasibility and consideration of whether or how to test.