IRS drops longstanding promise not to compete against TurboTax

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A US individual income tax return document lying on a table next to a calculator, notebook, pen, and iPad.

The Internal Revenue Service’s new agreement with the tax-software industry prohibits companies from hiding their free options from search engines and allows the IRS to offer its own tax-return software in competition against TurboTax. That doesn’t mean the IRS will offer its own software, but the agency has officially rescinded its promise not to compete against the industry.

As ProPublica reported in April 2019, TurboTax maker Intuit used a robots.txt file to “deliberately hid[e] its Free File page from search engines.” TurboTax subsequently changed the code on its Free File page so it wouldn’t be hidden from Google and other search engines anymore, but at least five US states opened investigations into TurboTax’s marketing and provision of its free tax programs. H&R Block was also hiding its free tax service from 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 extracted new promises from Free File, an industry consortium that represents Intuit, H&R Block, and other tax-prep-software makers. The changes were announced by the IRS on December 30 and put into an addendum to the 18-year-old IRS/Free File agreement that requires free services for low- and mid-range incomes.

Free tax prep available to 70% of US

Free File programs offer free tax-prep software to people with incomes below $69,000 (about 70 percent of the US population) and free “fillable forms” for people making more than that. The industry has offered free services in exchange for the IRS promise not to compete against them—but that promise is now gone.

Previously, the IRS/industry memorandum of understanding said that “In recognition of this commitment [to offer free filing services to low-income taxpayers], the federal government has pledged to not enter the tax return software and e-file services marketplace.” The new addendum says that sentence “is hereby stricken” from the agreement.

The addendum also states that tax-prep companies “are prohibited from engaging in any practice that would cause the member’s Free File landing Page to be excluded from an organic Internet search.”

The deletion of the IRS’ promise not to compete against the industry raises the possibility of the IRS offering its own free tax-filing service. The IRS hasn’t announced any plans to do that, but the change could put more pressure on software makers to live up to the full terms of their deal with the government.

We asked the IRS today if it plans to offer its own tax-prep software, but a spokesperson said the agency had no further comment beyond what it announced.

The IRS’ own expert advisory council criticized it in November 2018 for “deficient oversight” of the Free File program, putting “vulnerable taxpayers at risk.”

TurboTax hasn’t been forced to give back all the money it charged people who were eligible for free tax-filing services, but some customers were able to get refunds by calling the company.

Intuit says it doesn’t object to changes

Intuit said in a blog post that it “strongly supports these changes to the Free File program and associated Free File offerings because they increase the focus on the taxpayer experience.” Intuit said that its “search and marketing practices already conform with the new addendum requirement,” though that’s only because Intuit changed its practices last year.

Intuit also said that it doesn’t object to the deletion of the IRS promise not to offer its own software. Intuit wrote:

An original objective of the Free File program was to encourage private industry investment in technology and services to deliver on IRS goals of increasing e-filing. With approximately 90 percent of taxpayers e-filing today, the language is no longer relevant and is not a prerequisite for Intuit’s continued participation in the Free File program. Critics of the program came to believe that this language was the only thing stopping the IRS from offering tax preparation software and assistance, and that companies participated in Free File only in exchange for this promise. That is wrong, and we support removing the language that fostered this confusion. We are confident in our exceptional product, and we participate in the Free File program to help give eligible taxpayers another option to file their taxes for free.

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

Besides the new search-visibility requirement and deletion of the IRS pledge not to compete against the industry, the addendum includes several more obligations to ensure that companies make free-filing options known to eligible consumers. Here are a few highlights:

  • Companies must standardize the names of their free offerings so that taxpayers can find them easily from organic searches. Companies must refer to their free service as: “IRS Free File program delivered by (Member company name or product name).”
  • Company websites must provide taxpayers with a link to the IRS Free File website “at the earliest feasible point in the preparation process if they do not qualify for the [company’s] Free File offer.”
  • Companies must implement new procedures to verify that returns submitted to the IRS with the Free File indicator “have absolutely no fees associated with federal return preparation and e-file.”
  • Each company must survey a random selection of taxpayers who use its free filing service about their customer experience and satisfaction, and provide quarterly and annual reports to the IRS.
  • Companies must use independent auditors to review their websites and provide the auditor’s aggregate findings to the IRS.

IRS Commissioner Chuck Rettig said the changes “will make Free File stronger and give taxpayers another reason to consider this valuable software option.” The IRS and industry will continue working together to “help low- to moderate-income taxpayers and to pursue meaningful opportunities to enhance taxpayer awareness and use of the Free File Program beyond the 2020 filing season,” Rettig also said.

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