For years, TurboTax maker Intuit and other tax-preparation program makers worked to stop Americans from filing taxes directly with the federal government for free. But the TurboTax scam may finally be coming to an end.

Intuit and other corporations have kept Americans reliant on their services to file taxes, despite a US government effort to introduce a free filing service.
(Rafael Henrique / SOPA Images / LightRocket via Getty Images)

For decades, the makers of tax-preparation software, like TurboTax owner Intuit, have worked to prevent Americans from filing taxes for free with the federal government. Through a combination of aggressive lobbying and search-engine manipulation, Intuit and other corporations have kept Americans reliant on their services, despite a US government effort to introduce a free filing service.

That may now be changing, as the Internal Revenue Service (IRS) has launched a pilot program, Direct File, that allows taxpayers to file for free. On the Lever Time podcast, Arjun Singh recently talked with Paul Kiel, a ProPublica reporter who has covered the tax-prep industry, and Beth Simone Noveck, a professor of experiential artificial intelligence (AI) who has helped develop tech platforms for state and federal government, on tax-preparation companies’ long campaign against letting Americans file directly with the IRS and the prospects for the government’s new pilot program.

Paul Kiel

In the 1990s, Intuit bought a company called Chipsoft, which had created TurboTax. This was like, CD-ROMs — back then, you would buy a CD-ROM that has tax software and then use the program to file through your computer.

Our understanding is that Intuit got into the game when it realized that things were pivoting online. There were some rumblings in Congress, and later in the George W. Bush administration; there was big enthusiasm for what some people called “e-government” or online services — that tech optimism of the late 1990s and early 2000s of, “This is gonna change the world.”

So the big hinge point comes [with] the Bush administration, [as] part of this general push to increase government services through the internet. They say, why don’t we build a simple tax program? This is only for low-income people who have very simple taxes, people who just have a W-2, and maybe they have a kid they need to put in there.

Arjun Singh

One of their ideas was to let people file directly with the IRS. To Intuit, though, that was seen as a direct assault on their business.

Paul Kiel

It totally freaks out Intuit. And it starts lobbying on the Hill.

Arjun Chaturvedi

To push its agenda on Capitol Hill, Intuit enlisted the help of Bernie McKay, a heavy-hitter lobbyist and former Jimmy Carter administration official who did a full-court press on lawmakers.

Paul Kiel

They found a lot of sympathetic ears for the idea that the IRS is gonna mess this up. Because the IRS didn’t exactly have the rep of being the place that created great customer service experiences.

Arjun Singh

That was especially true on the Republican side of the aisle, particularly in the era when Intuit started lobbying the government. In the ’90s people like Newt Gingrich, the former speaker of the House, frequently painted the IRS as a villain, and dismantling the agency was a major theme of Republican senator Richard Lugar’s 1996 presidential campaign. By the time the Bush administration had proposed a free filing system, Intuit’s lobbying work had helped to keep those ideas embedded, particularly among Republicans.

To push its agenda on Capitol Hill, Intuit enlisted the help of Bernie McKay, a heavy-hitter lobbyist and former Carter administration official who did a full-court press on lawmakers.

Paul Kiel

There were even almost-conspiratorial theories floated like, maybe the government will use key tracking when you’re entering your taxes, and they’ll know that you’re changing stuff — they’ll use that data. There’s no evidence that was ever the case.

But these sorts of arguments are put out there to poison the idea that having the IRS do your taxes would be a good idea. The compromise that comes out of this is, essentially, Intuit organizes the industry, and it says, we will do for free the taxes of low-income people you were thinking of serving. In exchange, the IRS will sign a contract saying we’re not going to build any sort of tax prep that’s free through the government.

Arjun Singh

That nonaggression pact led to the creation of something called the Free File Alliance, launched in 2003. This was a partnership between the IRS and tax-prep companies, one of the largest being Intuit: in exchange for the IRS backing off from creating its own version of TurboTax, these companies agreed to allow some taxpayers to file their taxes for free. The catch — if you use TurboTax, it seems to make it as difficult as possible for you to know you didn’t need to pay it.

Paul Kiel

The potential was for it to be sort of transformative, at least on paper. But the way it worked wasn’t, you just go to TurboTax and start filling out your taxes, and it says you qualify for free tax prep, because you qualify for this government program. It never worked that way.

It was always what was called “a secret door.” You had to go to the IRS website, which already looked a little less shiny than the homepage for any of these tax-prep companies. You had to find the page for free file. Then the qualifications were a little different state to state in terms of what income ranges would qualify and what different aspects of your financial situation were — it was always complicated. And if you went through that secret door, then you could run the pilot, and you could get your taxes done for free.

Arjun Singh

Even if you knew about the program, the page would still be incredibly difficult to find, leading a lot of people to just opt for the paid version.

Paul Kiel

Intuit was purposely hiding its free-file government program page. What we found is that when you Googled free file, Intuit’s paid “free” edition — what it called its “free edition” — would come up. That’s the bait-and-switch version, not the government program. It was actually putting something on its webpage to prevent people from easily Googling “government free file” and finding that page.

Arjun Singh

By offering free filing, TurboTax wasn’t doing the government a favor. In fact, it was a good way to lure in unsuspecting customers. If you’ve ever seen a TurboTax commercial, you might notice it usually mentions the word “free” a lot.

Paul Kiel

You’re seeing how you could bring people in with the promise of free tax prep. If you just went out and you advertised, “You can get free tax prep with us” — in the mid-2000s, the company figured out this is a great way to bring in customers. Then some people will run the gauntlet and meet all the qualifications; most people will not. Once they’ve taken the time to fill out their taxes, they’re not going to jump to somebody else. They’re gonna pay $50 or whatever to file their taxes. And it could be like $100, if it included state filing.

Arjun Singh

ProPublica’s reporting led to a massive scandal for both Intuit and TurboTax. Multiple state attorneys general filed lawsuits against Intuit for allegedly deliberately hiding its free program from Google Search. That eventually led to the government launching its own direct-file program.

I reached out to Intuit to ask what it felt about direct file. Its spokesman told me the program was a “solution in search of a problem.”

Another defense of TurboTax I’ve heard, however, is about fairness. After the news that the IRS would expand direct file more broadly in 2025, Intuit stocks fell. I was talking to a person, a software developer who I’m very close with, and he said he was unsure how to feel about the government essentially replicating software TurboTax had spent years fine tuning. How sophisticated is TurboTax’s tech?

Paul Kiel

If you do your taxes, there are always all these animations of like, we’re working, we’re calculating, we’re refining all the deductions for you. We live in an age of AI — the computers can do this stuff in a blink of an eye. They add all these things that make it appear they’re doing something special or complicated when they’re not.

Intuit was actually putting something on its webpage to prevent people from easily Googling ‘government free file’ and finding that page.

It’s not that hard to build a basic tax portal. The real value-add, the thing that I think makes TurboTax really attractive to people, is it has struck all these deals with payroll providers and investment companies like Vanguard, where you can easily import your data, so you don’t have to cut and peck your way through your W-2 or 1099 or whatever.

That saves time for people. That’s one thing that TurboTax has, and then the thing that used to be popular was that it would automatically import all your information from years past — which is not technologically the hardest problem to solve either.

The IRS and the Biden administration are pretty clear they’re not trying to wipe out the tax-prep industry. They’re trying to give people real options to file for free. We have other programs that are nice: there’s volunteer tax assistance, which people should look up. You can have volunteers do your taxes for free. But that’s never going to reach tens of millions of people; there’s only so many volunteers.

Arjun Singh

Direct file is unlikely to destroy TurboTax, much less its parent company Intuit, though the company could stand to lose a lot of potential customers. According to one statistic from Fox, 90 percent of tax filers use tax prep. So it stands to reason that a good amount of them are probably eligible to file for free.

All that being said, just because the government built it, does that mean it’s actually going to work. How feasible is it for the government to create a sustainable tech platform like direct file?

This year, the IRS rolled out a pilot program in twelve states: 140,000 people used it, and the Associated Press estimates users saved roughly $5.6 million in fees. According to research by the think tank the Economic Securities Project, direct file could also help people, especially low-income households, actually get the refunds and tax credits they’ve earned.

Beth Simone Noveck

Everybody can build bad tech. Intuit knows how to make a really bad tax-filing platform that is incredibly difficult for people to find and to use. That’s an intentional act, to make it extraordinarily difficult for people to use the free version, and therefore people are pushed to the paid version.

Arjun Singh

In the last ten years, there have been several government tech failures that come to mind, the most prominent being the Obama administration’s botched rollout of healthcare.gov, the website people use to sign up for insurance plans under the Affordable Care Act. When the site first launched in 2013, it experienced tech issues and outages for weeks, even prompting an irritated Obama to call out those problems.

Recently, tech problems were behind a major glitch in the Free Application for Federal Student Aid (FAFSA) program, which students use to get financial aid. Due to the error, students have delayed college decisions, and roughly a million may have received inaccurate financial-aid information.

Beth Simone Noveck

We have this FAFSA disaster, which is front and center in people’s minds with the inability for people to file for their financial aid for colleges. Then you have this direct-file pilot from the IRS. The big question is, what’s the difference between these two projects?

Whether it’s healthcare.gov or FAFSA or vaccine rollouts or testing or any one of innumerable tech failures in government that we’ve seen, I think the big difference is a couple of things. What they did in the direct-file case, in the IRS, is to build incrementally. They started with a pilot and they built it in pieces, rolling it out one piece at a time.

Importantly, it was not the only way for you to file your taxes if you were in one of those twelve pilot states. Had something gone wrong, you still could have gone to your accountant, you still could have gone to TurboTax, you still could have used a paper-based form and sent it in, as many people do, through the post office. So you had options. We were not reengineering the plane while flying it without a parachute, which is what’s happening in the case of FAFSA — you have a single place where people have to go.

We saw this again with healthcare.gov and with other sites where you have one place where people have to go, where there’s no alternative. Then when there’s a bad design decision, for example, the failure to recognize that somebody’s parent might not have a Social Security number, and that ends up preventing you from applying for financial aid and therefore from applying to college. . . . That’s the thing you really want to avoid doing.

In the direct-file case, by contrast, you have a phased rollout, testing each feature as you go, rolling it out very carefully. You have extensive user testing, engaging with people, and not just the most tech-savvy or tech-literate computer users, but people who may be low literacy, or who may be using the system on their mobile phone, who might not speak English as a native language, who might have a disability.

Everybody can build bad tech. Intuit knows how to make a really bad tax-filing platform that is incredibly difficult for people to find and to use.

It’s testing extensively with users as you go, again and again, as you try each feature to determine what’s clear and what’s not clear. Often it’s not something as complicated as some technical system [failure]. It’s the failure to write clear directions that can make it very difficult for people to use a system.

The idea of more human-centered, more agile, more iterative, is what we know about the way to build good software in the private sector or the public sector. I think there’s a real dedication in some places in the public sector with building that kind of tech.

The last big difference is that the public sector is focused on the public interest. The goal is not to make a profit. The goal is not to sell you a subscription to something; the more lines on forms you fill out — the government doesn’t get paid any more for that. The goal here is to serve the public.

There are a lot of cases where you want the public sector directing what gets built, which doesn’t mean you can’t have people from the private sector involved. In fact, the direct-file case had a blended team: people who worked inside government, people who work outside governments. But the project is ultimately directed by the public sector, so that the public-centeredness, the public mission, is where the focus is.

Arjun Singh

Do you think that direct file is something that’s sustainable? Is it something that we’re going to be able to expand, given all of the complicated information that goes into taxes?

Beth Simone Noveck

Do you think taxes are complicated? That’s one of the problems — that’s a legal problem. I don’t think that’s necessarily a technical problem.

The big challenge we’re starting with in the United States is that unlike in many other countries where your taxes are filed for you and all you do is proof the return, essentially, we have created a very complex legal system and policy environment that has made this a complicated space to work in. But as we’ve seen, both from the direct-file federal example and the ReadyReturn pilot that happened in California that preceded it — which was a similar thing for state taxes in California — is, despite how most of us think about taxes with a certain trepidation, it’s actually very doable.

This is not to sell short the incredible amount of work that this team went through to put this together and to make this happen. But even in this incredibly complex legal and policy environment, they were able to do something. To their credit, they started with one of the easier cases: they started with this straightforward W-2 filer as opposed to the complex business tax return or somebody who has seven different consulting hustles. That comes next.

Doing it incrementally so that you can understand, what are the rules? And then, how do we put the rules into software? I think they’ve done a fabulous job in terms of actually building an interface that is intuitive. Over 90 percent of people who’ve used it have said they liked it, and a higher number than that in California [said that] for ReadyReturn. It’s getting rave reviews.

You can subscribe to David Sirota’s investigative journalism project, the Lever, here.

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