TurboTax's Intuit Spent Record Amount Fighting IRS Direct File—and Failed
New disclosures reveal the tax prep industry's fierce opposition to letting people file their taxes online for free.
By Donald Shaw and David Moore, Sludge
The owner of tax prep software TurboTax spent more money than ever before in 2023 on lobbying the government as it fought the Biden administration’s plan to create a free electronic system for people to file their taxes directly with the government.
Inuit reported spending nearly $3.8 million to lobby the federal government last year. The most it had ever spent previously was the slightly more than $3.5 million it spent in 2022. According to the company’s disclosures, Intuit lobbied Congress, the Department of the Treasury, the Commerce Department, and the Small Business Administration. Companies don’t have to disclose the details of the issues they lobbied on, but many of Intuit’s disclosures say it lobbied on the implementation of the Inflation Reduction Act, which is the bill that required the Internal Revenue Service to conduct a feasibility study of creating a direct filing system.
For decades, Intuit and other companies in the tax prep industry have spent tens of millions of dollars on lobbying—and more on a wide-ranging influence campaign— to dissuade the government from creating its own free tax filing system. According to an estimate from ProPublica, the industry earns about $1 billion a year from taxpayers who are eligible to file their taxes for free but end up paying companies to file their taxes after encountering “hidden fees.” The Federal Trade Commission on Monday ruled that Intuit had engaged in deceptive practices when it advertised “free” tax products and services and ordered the company to cease making deceptive claims.
In May, the Biden administration announced it would create a Direct File program, which is on track to be available in a limited-scope pilot in the coming months as people file their 2023 taxes. The Internal Revenue Service has said the service will be available to people in 12 states with relatively simple tax situations, like W-2 wage income and usage of the standard deduction. The pilot program will be offered to individual taxpayers in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington state, and Wyoming.
Intuit argues that a government Direct File system poses a conflict of interest and that Americans don’t want it. “Time and time again, taxpayers have been clear that making the IRS the end-all be-all for their personal finances is a bad idea and something they do not support,” the company wrote on its website. Intuit also argues that the program is redundant because free tax filing options are already available for anyone who chooses to use them. But the lesser-known free programs have only been used by between 2 and 3 percent of the 70 percent of eligible taxpayers in recent years. The Treasury Department estimates the Direct File program could save taxpayers billions of dollars a year because it will cost it about $10 per tax return filed whereas many taxpayers currently pay companies like Intuit about $40 per return.
Intuit’s TurboTax claims a dominant share of the tax prep market, reaching 73 percent in 2021 according to data analytics provider Bloomberg Second Measure.
The company relies on a deep roster of lobbyists. For years, Intuit has hired a dozen lobbyists at the two largest D.C. lobbying firms by revenue—Brownstein Hyatt and Akin Gump—to make its case with congressional committees and federal agencies.
The vast majority of the nearly 100 federal lobbyists Intuit has retained throughout 2023 have previously held positions in government, including two of the company’s in-house lobbyists. Michael J. Kennedy, the company’s chief corporate affairs officer, was formerly a chief of staff to Utah Republican Sen. Orrin Hatch, and Brian McCullough, Intuit’s director of government relations, formerly worked as a Republican senior staffer at the House Energy & Commerce Committee. Kennedy was one Intuit lobbyist who mentioned lobbying on the implementation of the IRA in disclosures.
Intuit is not alone in pressuring Congress to weigh in on how the IRS implements the Direct File program. The industry trade group battling back the Direct File program is the American Coalition for Taxpayer Rights (ACTR), whose members along with Intuit include H&R Block, tax prep companies like Jackson Hewitt, and the Kentucky-based Republic Bank. Its lobbyist Stephen Ryan, who has represented the trade group since its founding in 2011, lobbied the House and Senate last year on “Issues regarding IRS program described as Direct File.”
In May, the Republican-controlled House Committee on Ways and Means fired back against the Biden administration’s announcement that it would roll out the Direct File pilot. Committee Chair Rep. Jason Smith (R-MO), who accused the administration of “cooking the books” when a survey found that 72 percent of Americans were interested in using a free online tax filing option from the IRS, had received a $5,000 contribution from Intuit’s PAC on March 31, 2023.
The ACTR similarly spent a record high amount in federal lobbying last year, totaling $370,000 and continuing its trend of rising spending since 2020. Effective May 1, 2023, the trade group retained several new lobbyists with Brownstein Hyatt to lobby on “Issues related to tax administration and tax-time financial products.” They include yet more former congressional staffers with tax experience: Russell Sullivan, a former staff director for the Senate Finance Committee; Harold Hancock, former tax counsel for the House Ways and Means Committee; and Mark Warren, former chief tax counsel for the Senate Finance Committee.
H&R Block’s lobbying spending ticked up last year as well to over $3 million, according to Senate records, an increase over the nearly $2.7 million the company spent in 2022.
Watch our feature video on the fight to win free online tax filing: