The House GOP’s Financial Services and General Government Appropriations Bill, released this week by committee Chair Tom Cole, R-Okla., targets the IRS’s Direct File program via a policy rider that prohibits the funding of “a government-run tax preparation software that Congress has not authorized.” 

Just last week, the IRS announced that Direct File would be made permanent following a pilot program that saw more than 140,000 taxpayers across 12 states use the free electronic filing system. The tax agency said the program received more than $90 million in refunds and reported $35 million in balances due during its pilot run. 

Treasury Secretary Janet Yellen touted Direct File further this week during testimony before the Senate Appropriations Subcommittee on Financial Services and General Government, noting that all states will be invited to participate in the program “as soon as next filing season,” with expansion on the horizon “to support all of the most common tax situations over the next few years.”

House Republicans’ bill, which cuts the IRS’s budget by $2.2 billion from fiscal 2024 funding levels, is the culmination of months of sustained attacks on Direct File from GOP members of Congress, state attorneys general and state treasurers and comptrollers. 

The highly lucrative tax preparation industry has also been gunning for Direct File. In an April statement to FedScoop, a spokesperson for Intuit — maker of TurboTax — said the tax agency’s Direct File post-mortem included estimates that were “clearly low, inaccurate, and the IRS even acknowledges conveniently leaving out necessary costs to build and run the pilot.”

Democrats, meanwhile, railed against Republicans’ proposed cuts to the IRS — which include a $2 billion reduction in enforcement funding — and especially the move against Direct File. Senate Finance Committee Chairman Ron Wyden, D-Ore., said in a statement that “the centerpiece” of Republicans’ budget plan for the IRS is “helping rich people cheat on their taxes.”

“If Republicans have the opportunity, they will deprive law-abiding taxpayers of the choice to file their taxes for free with the IRS’s new direct file program by shutting it down before it expands nationwide,” Wyden said. “In short, the winners in this plan are rich tax cheats like Donald Trump, and the losers are typical Americans who earn a wage, follow the law and want to file their tax returns every spring without getting ripped off by big tax software companies.”

News of the GOP’s Direct File targeting came amid a victory lap for the IRS and its Document Upload Tool, which processed its one millionth taxpayer submission. The agency had a limited rollout of the tool in 2021 and expanded it substantially in 2023 thanks in part to funding from the White House’s Inflation Reduction Act.

“The Document Upload Tool is a key part of our ambitious initiative to transform the IRS into a virtually paperless agency, and we continue to see increased use of this by taxpayers,” IRS Commissioner Danny Werfel said in a statement. “This tool saves time for taxpayers and helps IRS employees process responses faster and more efficiently.”

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The decision to make Direct File a permanent program comes after a pilot this year that allowed taxpayers in 12 states to electronically file their federal returns directly with the agency at no cost.

IRS Commissioner Danny Werfel said in a statement that taxpayers this filing season delivered a “clear message” to the agency in wanting “one no-cost option for filing electronically.”

“Giving taxpayers additional options strengthens the tax filing system,” Werfel said. “And adding Direct File to the menu of filing options fits squarely into our effort to make taxes as easy as possible for Americans, including saving time and money.”

More than 140,000 taxpayers — in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington and Wyoming — used Direct File in 2024, according to the agency, receiving more than $90 million in refunds and reporting $35 million in balances due.

The IRS said in a Direct File 2024 post-mortem last month that there was “steadily increasing interest” in the program, though Werfel had to “consult a wide variety of stakeholders” before rendering a decision on its future. 

Now that Treasury Secretary Janet Yellen has accepted Werfel’s recommendation that Direct File continue indefinitely, the agency said it is “examining options to broaden” the system’s availability across the country, “including covering more tax situations and inviting all states to partner with Direct File next year.”

There will be “no limit” on the number of participating states in 2025, the IRS noted, and going forward, Direct File will expand “to support most common tax situations, with a particular focus on those situations that impact working families.”

Werfel said Direct File’s user experience, both within the product and in state-wide systems integrations, “will continue to be the foundation” for the program. 

“Accuracy and comprehensive tax credit uptake will be paramount concerns to ensure taxpayers file a correct return and get the refund they’re entitled to,” he said. “And our North Star will be improving the experience of tax filing itself and helping taxpayers meet their obligations as easily and quickly as possible.”

Though the agency touted positive user feedback in the weeks after the conclusion of the 2024 filing season, Direct File wasn’t without its critics. A Government Accountability Office report last month found that estimated start-up costs for the program were incomplete and “a comprehensive accounting” was needed if the pilot were to be continued and expanded. 

“A review by the Treasury Inspector General for Tax Administration found that IRS had no documentation to support the underlying data, analysis, or assumptions used for Direct File cost estimates. We found this as well,” the GAO wrote. “Without collecting the information needed during the 2024 pilot to inform a comprehensive assessment of the costs associated with Direct File and its benefits, IRS risks making longer-term decisions without full information.”

The highly lucrative tax preparation industry has also been exceedingly critical of Direct File, calling the program “a solution in search of a problem” given other no-cost filing options. 

Those companies have sought to draw a contrast between the 140,000-plus Direct File pilot users and the millions that use their services each year. Derrick Plummer, an Intuit spokesperson, said in a statement to FedScoop that the company’s TurboTax program “has filed millions of completely free tax returns annually and has provided more than 124 million free tax returns over the past decade.”

Shortly after the Direct File announcement, Werfel made another move Thursday to bolster its taxpayer experience, naming Fumi Tamaki its chief taxpayer experience officer. Previously an adviser in the IRS Transformation and Strategy Office focused on “enterprisewide taxpayer journey improvement initiatives,” per an IRS announcement, Tamaki will now set the agency’s vision for continuously improving the taxpayer experience as part of the IRS’s larger digital transformation.

“This is a critical time for IRS, and I am excited to continue working with IRS leaders and our external partners in this role,” Tamaki said in a statement. “The Taxpayer Experience Office team and IRS have made tremendous strides in improving the taxpayer experience. I am committed to build on this work to deliver the experience that taxpayers expect and deserve.”

Billy Mitchell contributed to this article.

This story was updated May 30, 2024 with comments from an Intuit spokesperson.

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“Frankly, there aren’t enough places for agencies to go across government when they have technical questions or need technical help, so we get a huge array of requests,” USDS Administrator Mina Hsiang said in an interview with FedScoop.  

Those requests, many of which are detailed in the 2024 impact report USDS released Thursday, can’t all be addressed. Hsiang said USDS works to fulfill “over a quarter” of the agency requests for partnership, with consultation but not full engagement provided on approximately 10% of those asks. 

“We do a lot of work to contemplate the size of the population impacted, the vulnerability of the population impacted, the change it will have on the service and how critical the service is for people’s livelihood,” she said.

In its report, USDS outlined progress on 10 different projects across agencies, covering topics including digital service accessibility, building veteran trust, federal benefits for families and more. 

A closer look at USDS projects

In its partnership with the Social Security Administration, USDS worked with the agency to “observe customers” and learn how the public engaged with SSA’s website. According to the report, the project would save an estimated $285 million over five years for infrastructure expenses. 

The partnership with SSA has “created momentum to improve service delivery” through transforming the agency’s static homepage, the report noted, replacing “complicated” policy language with a conversational eligibility screener and building development infrastructure that involves a content management system and more.

The USDS is currently working with the Department of Veterans Affairs’ Office of the Chief Technology Officer to develop software intended to improve the lives of veterans. In teaming with the agency on VA.gov, USDS aimed to build veterans’ trust in the VA. Per the report, veterans’ trust in the VA climbed from 70.4% in FY18 — the year of VA.gov’s relaunch — to 79.3% in FY23.

“The Veteran Experience Office does a very comprehensive work of engaging veterans and building an array of metrics together,” Hsiang said.

The impact report also touted USDS’s partnership with the Department of Health and Human Services to help modernize and implement services that support an interagency Life Experience Research Team, aiming for “simpler, more accessible and equitable” digital experiences. Specifically, the organization conducted research with a nationwide group of participants, documenting their experiences throughout pregnancy and childbirth along with any relevant interactions with the federal government. 

Working with an HHS Life Experience Research Team that included  representatives from the General Services Administration, the Department of Labor, the Department of Housing and Urban Development and others, USDS piloted three digital programs to support families, including a text message service called Notify.gov that allows government partners to send texts about benefits and support programs to the public.

“This is one of those places where we can partner very closely with an agency that’s building out a shared capability for more folks and give them direct feedback,” Hsiang said. “The team had a very good experience with it.”

Though not listed in the impact report, the USDS also worked “extremely closely” with the IRS on the implementation of its Direct File pilot program. Hsiang said the partnership was not included in the report due to a timing issue, but noted that USDS assisted in technical expertise, user research, product management and more. Direct File was utilized by over 140,000 taxpayers in its inaugural run, according to the IRS. 

“This pilot is only with 12 states, but obviously there’s real opportunities for growth there because building out that capability so that folks in every state can have this option will be important,” Hsiang said. “The tax code is huge and incredibly complex, so there were almost 20 million people who were eligible for this pilot, but it will be important to expand that capability to encompass more individuals.”

A busy year followed by more to come from USDS

For Hsiang, who has led USDS since September 2021, the release of the impact report represents what she views as “a year of launching things.”

“There’s a lot of programs here that are a demonstration of incredible value in themselves, but also a proof of concept of a new model working,” Hsiang said. 

USDS is investing in hiring both internally and with agency partnerships, Hsiang said, in an effort to capitalize on momentum to build long-term capacity within agencies. She confirmed that the USDS is working to support agencies in hiring more talent, including as part of efforts called out in the White House’s artificial intelligence executive order.

“I think there’s a lot of interest, but the talent moves quickly, gets hired quickly, looks for competitive salaries and opportunities,” Hsiang said. “That will definitely be a challenge, but one we’re excited to take on.”

Hsiang said her hope for this report is a “clear illustration” of what government talent is able to accomplish, and stressed the importance of USDS’s investment in technology-centered work.

“I think the report starts to give a real detailed window into the range of different types of work that we do and the short- and long-term impacts that it can have,” Hsiang said. “One of the things that we hear across government regularly is that technology ends up slowing people down instead of speeding them up, if it’s not implemented right. That is not what anyone intends and that’s not what we’re investing for.”

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