Republican AGs slam Treasury’s attempt to build in-house TurboTax at IRS

Thirteen Republican state attorneys general are railing against federal efforts to establish a TurboTax-style tool at the IRS for taxpayers to file their returns directly to Uncle Sam — decrying the move as a Trojan Horse to soak Americans under the guise of convenience.

In a blistering letter to Treasury Secretary Janet Yellen Tuesday, the AGs ripped the endeavor as “unnecessary and unconstitutional.”

“The American taxpayers do not want to invite the proverbial fox into the hen house,” wrote the group, led by Montana’s Austin Knudsen. “There’s an obvious conflict of interest when the IRS acts as tax preparer, filer, and auditor—a conflict destined to impact vulnerable and low-income.”

Nestled in the $740 billion Inflation Reduction Act signed by President Biden in August 2022 was $15 million allocated for the IRS to study the feasibility of a free tax-filing system.

The IRS then tapped New America, a progressive think tank that Republican critics noted previously supported the establishment of an agency-run direct tax filing program, to conduct the study.

Last year, the Treasury Department announced plans to establish a direct file pilot program for the 2024 tax season.

A chorus of progressives cheered the move, including Sens. Elizabeth Warren (D-Mass.) and Patty Murray (D-Wash.), as well as Reps. Katie Porter (D-Calif.), Brad Sherman (D-Calif.), and Don Beyer (D-Va.)

“Giant tax prep companies have fought Direct File every step of the way, making tax filing more complicated and expensive than it should be and making it harder for families to get the tax credits they deserve,” they said last October.

“We look forward to supporting the IRS’s efforts to develop and expand the Direct File pilot, setting us on a path where millions of Americans will no longer have to worry about giant tax prep companies sharing their private data with Big Tech firms and ripping them off for services that should be free.”

Individual taxpayers are estimated to spend an average of $240 in out-of-pocket costs and 13 hours filing their annual tax returns, according to a 2022 IRS report to Congress.

Democrats have championed an IRS-run direct-file tax system as a means of reducing those burdens on everyday Americans.

But the Republican AGs argued the pilot program wasn’t properly authorized by Congress.

“Congress has neither passed legislation granting this authority to Treasury nor allocated any additional funds for this program,” they said.

Many conservatives have long opposed efforts to create a government-run TurboTax alternative, fretting that such a program could be a “power grab” for the IRS.

“Forcing Americans to accept the IRS as their tax preparer, filer, and auditor isn’t a step forward,” Ways and Means Committee Chairman Jason Smith (R-Mo.) said in October.

“Working Americans are rightly skeptical of an agency that consistently abuses its power, violates trust, and is currently implementing a plan to target more middle-class taxpayers with an audit.”

One Republican operative told The Post that strategists have been concocting plans to mount an ad campaign against Democrats over the IRS-run direct file system.

“This has been in the works for a while since they started planning this thing,” the person said. “There will be campaign ads about this. And the theme is going to be, this is an IRS power grab to make you pay more money.

“If the IRS suddenly becomes your accountant, their goal is for you to pay maximum revenue, as opposed to [getting you] a refund,” the person added. “It’s a good issue for Republicans because a lot of people don’t know about it, so it’s new information.”

In addition to Knudsen, the other attorney generals who signed the letter include Christopher Carr of Georgia, Raul Labrador of Idaho, Brenna Bird of Iowa, Liz Muriel of Louisiana, Andre Bailey of Missouri, Mike Hilgers of Nebraska, Alan Wilson of South Carolina, Jonathan Skrmetti of Tennessee, Ken Paxton of Texas, Sean Reyes of Utah, Jason Miyares of Virginia, and Patrick Morrisey of West Virginia. 

“The IRS is infamous for its consistently poor customer service. In 2021, the IRS answered just 2[%] of the calls to its official helpline. The next year, the IRS had a backlog of 21.3 million returns,” they stressed.

They predicted that venturing into direct filing, “will only exacerbate the agency’s failures.”

Democrats have countered that the IRS is starved of resources and needs more funding.

President Biden’s administration has sought to marshal some $80 billion to the agency, drawing more outrage and fierce resistance from Republicans

The AGs also emphasized that the IRS has a history of coming down harder on lower-income Americans, who are less likely to have accountants or high-powered tax attorneys at their disposal.

“Research from Syracuse University found that the IRS was five times more likely to audit low-income households earning less than $25,000 a year,” the attorney generals added.

“Recipients of the Earned Income Tax Credit (ETIC) are also twice as likely to be audited than taxpayers earning $500,000.”

In November, a group of 16 state attorneys general sent a letter to Yellen affirming their support for the pilot program.

They took note of a multi-state investigation into Intuit, Inc., the owner of TurboTax, that ended with the firm agreeing to pay $141 million in restitution to 4.4 million people over allegedly deceptive practices.

“Millions more families find these and other taxfiling barriers insurmountable and don’t or can’t file taxes. For those who do file taxes, the tilted marketplace leads many to miss out on critical benefits to which they are entitled,” they wrote at the time.

“Critically, the online tax preparation giants such as Intuit know that an IRS-run alternative will force them to engage in fairer business practices, to the benefit of consumers all across the country.”

Igor Volsky, executive director of Groundwork Action, a left-leaning policy think tank, disputed the AGs’ assertion that the IRS has a conflict of interest.

“This isn’t how we think about government in any other context, and it shouldn’t be how we think about government with regard to the IRS,” he told The Post Wednesday. “Taxpayers will also still have a choice. Direct File is meant to complement — not replace — private tax preparation services. It’s just another option for filers.”