State financial officers urge Treasury to terminate IRS's Direct File program

A group of 21 state financial officers on Monday urged the Department of the Treasury to terminate the IRS's Direct File pilot program, contending that its shortcomings were likely to lead to problems for filers, cause needless confusion, and result in lost state revenues.

The IRS is currently running a digital tax filing pilot program that permits users to file their federal returns straight to the agency. It does not, however, permit users to file state returns. The group, writing to Treasury Secretary Janet Yellen, Deputy Secretary Wally Adeyemo, and IRS Commissioner Daniel Werfel, contend that the program is likely to lead to lost revenue for states due to filers incorrectly assuming Direct File addresses state taxes.

"We urge you to terminate Direct File following the current pilot program, as Direct File will create challenges for taxpayers and state treasurers and the costs of Direct File far outweigh any potential benefits it may confer to taxpayers. Regrettably, Direct File is a solution in search of a problem," the group wrote.

"Taxpayers who are unaware that they must separately file state returns will not receive anticipated state refunds this spring. This is significant because many taxpayers who use Direct File are likely to be lower-income and build budgets around anticipated tax refunds," they further asserted. "Even worse, confused taxpayers who neglect to file their state returns will be at risk of incurring state penalties. Imagine the surprise to the taxpayer who becomes subject to audit by the IRS after having filed through Direct File and having felt assurances that the tax return was prepared properly through the IRS’s own system."

"States will suffer too. States will lose out on payments from Direct File taxpayers who owe state taxes but incorrectly assume that Direct File covers federal and state filings," they went on. "States will then have to increase resources dedicated to collection efforts. Also, because the IRS will reassign customer service agents to staff the Direct File chat feature, fewer agents will be available to assist state officials who must contact the IRS to resolve issues with tax filings."

The group then highlighted the existing prevalence of non-profits offering free tax preparations services and that for-profit services allow for many free filings. 

Ben Whedon is an editor and reporter for Just the News. Follow him on X, formerly Twitter.