pshiu
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Comment · 2 years ago
Comment · 2 years ago
The original intent of the program seems to be a quid pro quo, where the IRS promises a non-compete with the tax preparation industry [1] in exchange for free federal tax prep for 70% of U.S. taxpayers [2].
As of 2019-12-26, the IRS no longer promises the non-compete [3], perhaps so it could start the Direct File pilot [4].
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[1]: From the summary of the proposed original agreement at https://www.federalregister.gov/documents/2002/08/08/02-1983...:
> The Consortium will offer Free Services to taxpayers at no cost. [...] During the term of the Agreement, the IRS will not compete with the Consortium in providing free, online tax return preparation and filing services to taxpayers.
[2]: "70%" source: see 4.1.3(i) of latest MOU: https://www.irs.gov/pub/irs-efile/ninth-memorandum-of-unders...
+info: https://www.irs.gov/e-file-providers/about-the-free-file-all...
[3]: Point (ii) of https://www.irs.gov/pub/irs-utl/FFI%20Signed%20MOU%20Addendu...
[4]: https://www.irs.gov/about-irs/strategic-plan/direct-file
Before digging into this, I thought the IRS set the income limit. (e.g. "We the IRS want all people earning less than $65k to have free tax prep.")
It appears it was the other way around: the memos show the IRS sets the % of the population it wants to have free tax prep services (70%), and the FreeFile income limits are calculated so in theory only the highest (30%) of incomes must pay for tax prep.
So I speculate that the answer to "Why is there an income limit?” may be "It was part of an attempt between the IRS and the private sector to have the richest 30% subsidize everyone else's tax prep."