PROJECT OVERVIEW
Digital Government, Public-Private Partnerships, and Administrative Burdens: The Free File Program
Highlights
Established in 2003, the IRS Free File program aimed to provide free tax preparation to millions of Americans through a partnership with private-tax preparation companies.
Industry and political opposition and reduced IRS resources limited the agency’s ability to develop its own free e-filing system and prevented the IRS from effectively overseeing the program. Misalignment between the IRS's objectives and those of private tax preparation companies led to aggressive lobbying and deceptive marketing practices which undermined the program.
In 2019, problems with Free File became subject to intense scrutiny, and the largest members of the Free File Alliance, Intuit and H&R Block, left.
The Free File program was implemented by the IRS in 2003 in partnership with private tax preparation companies with the goal of providing free electronic tax preparation to low-income Americans, over 60% of taxpayers. Political pressure and a lack of government support hindered the IRS's ability to develop its own e-filing tool or provide effective program oversight. The number of IRS employees was in decline, dropping from 116,673 employees in 1992 to 75,773 employees by 2020 (see Figure 1). With a growing population and decrease in IRS employees, staff were not only concerned about their ability to provide program oversight, but to effectively respond to the needs of the public using new online tools.
The partnership further suffered from goal misalignment, as private companies, particularly industry leaders Intuit and H&R block, prioritized profits, engaging in aggressive lobbying and deceptive marketing practices which pushed taxpayers toward paid products, further eroding public trust. For example, deep within the TurboTax FAQ’s, users were told that the only way they could get free services was by going to the IRS website rather than using the service that Intuit aggressively marketed as free (see Figure 2). Compounding these issues, the Free File software was often difficult to use, with some taxpayers experiencing errors and limited accessibility.
Despite the eventual widespread adoption of e-filing, accounting for 90% of filed returns in 2020, the Free File program failed to achieve its goals and peaked in 2005 with only 7.8% of e-filed returns. In April of 2019, there were plans to codify the 16-year public-private partnership into law. However, after intense scrutiny of the program, the law passed without the Free File language. Soon after, the largest members of the FreeFile Alliance left, putting the future of the partnership in doubt.
While outside of the scope of case study, the failure of Free File led to demand among users and within the Civic Tech community to build Direct File, a free tax filing program developed by the IRS, which launched in the 2024 tax season.