The IRS Direct File Pilot will Debut in 2024 for TY2023

IRS Direct File

“The IRS is committed to delivering significantly improved services by providing taxpayers with tools, information and assistance to make it easier to comply with their tax filing obligations. Direct File – used by numerous tax jurisdictions around the world – has long been discussed as an option for improving the customer experience for taxpayers in the U.S.,” said IRS Commissioner Danny Werfel. “The IRS review looked at the potential operational and administrative requirements of such a system. Ultimately, the results show there is taxpayer interest in an optional Direct file program and such a program is technically feasible. Any path forward should start with a limited pilot to assess operational factors described in this study.”

Thus, The Internal Revenue Service is moving ahead with a program that will offer many taxpayers a new option for filing their 2023 returns next year. Strategically called “Direct File,” a scaled-down version of the full program will allow taxpayers to file online for free, using an IRS-run website.

This move comes from chatter in the tax industry that directly links the Inflation Reduction Act (IRA). The IRA mandated that the Treasury Department and the IRS look into whether free online filing is possible through the IRS and what the agency needs to make it happen.

The IRS broke down its fact-finding effort into three pieces.

1) Do taxpayers want it?

A number of sources were united to acquire and analyze public opinion about the project. The IRS used its Taxpayer Experience Survey (TES) to poll thousands of taxpayers on the issue. Next, results from an independent MITRE Corporation survey were pulled in. Then, independent analysis by New America and Professor Ariel Jurow Kleiman on the concept was added to the mix.

An IRS report to Congress on the Direct File initiative determined taxpayer interest in the project is sufficient to move forward.

2) Are there costs to implementing Direct File?

While the IRS report doesn’t give hard figures, it does caution Congress that building and executing an effective Direct File online filing site would require a sustained investment by lawmakers. Given the difficulty the agency has faced in receiving requested funding, this could prove to be a roadblock for the future of the program.

3) Is a free online filing portal even possible for the IRS?

The congressional report says creating a successful online filing portal is feasible despite presenting technical challenges for operation and administration. According to the report, the agency is ready and able to meet these challenges.

The IRS is embracing a proven method of testing for its new project: start small and work your way up. To that end, the agency intends to field its Direct File pilot program in 2024 with a limited scope so technicians can more easily track its operation. This approach will also allow system administrators to see if the pilot project adequately meets the customer support and technology needs of taxpayers before the system is scaled up.

In the short term, the IRS plans to meet with stakeholders in the tax industry over the coming months to hear concerns and offer some answers. According to the agency, more details on the Direct File program will soon be available.

Now the question is if successful how many people will feel the strain of “Uncle Sam” having even more control over their income and expenses and how many will Tax Professionals will be out of a job if over the next few years this becomes the norm?