Congress drops proposal to ban the IRS from competing with Turbotax

Enlarge (credit: Kimberly White/Getty Images for TurboTax)

Lawmakers are planning to drop a proposal to prohibit the Internal Revenue Service from offering a free online tax-filing option, Politico and Pro Publica report. The provision was included in the Taxpayer First Act, which passed the House in April but has not passed the Senate. It was backed by the makers of private tax preparation software, including Intuit (makers of TurboTax) and H&R Block.

The IRS doesn’t currently offer a free online tax filing option. Instead, since 2003 the agency has had a standing deal with companies like Intuit and H&R Block to offer free versions of their products to customers with modest incomes and simple tax situations. In exchange, the IRS promised not to offer an online filing program of its own. Around 70 percent of all tax filers are eligible for the companies’ free versions.

This legislative proposal would have made this arrangement permanent. Companies would have continued to offer free versions of their software to most taxpayers, while the IRS would officially be prohibited from creating an online tax filing site of its own.