Bloomberg Audio Studios, podcasts, radio news. Lauren Dalbert is the type of guy who does not put off filing his taxes.

Bloomberg Audio Studios, podcasts, radio news. Lauren Dalbert is the type of guy who does not put off filing his taxes.

Getting it in as soon as I got my W two's, so did that I could get that refund as soon as possible.

Getting it in as soon as I got my W two's, so did that I could get that refund as soon as possible.

In the past, he's tried pretty much every strategy in the book to prep for them, hiring a professional, using websites like TurboTax, even doing the math himself.

In the past, he's tried pretty much every strategy in the book to prep for them, hiring a professional, using websites like TurboTax, even doing the math himself.

When I was an Army I would do other guys taxes for them, and this was just paper and pencil back in the eighties and stuff like that.

When I was an Army I would do other guys taxes for them, and this was just paper and pencil back in the eighties and stuff like that.

This year, the Economic Security Project, an advocacy group that sometimes partners with the Community Organizing Foundation where he works, told him he was eligible for another option. As a California resident with just one income source plus disability from the VA, he could file his taxes directly through the IRS website for free for the first time this year.

This year, the Economic Security Project, an advocacy group that sometimes partners with the Community Organizing Foundation where he works, told him he was eligible for another option. As a California resident with just one income source plus disability from the VA, he could file his taxes directly through the IRS website for free for the first time this year.

I didn't have to pay somebody. It could be over one hundred dollars by the time you're finish using those online tax preparing services.

I didn't have to pay somebody. It could be over one hundred dollars by the time you're finish using those online tax preparing services.

He says. It was pretty user friendly, no extra bells and whistles. He did run into some trouble verifying his identity, but says it didn't take long to connect with a real person who could help him. All in all, he says the whole process took less than an hour. Easy free, done in an hour? Are we still talking about filing taxes? Today? On the show? The IRS is piloting a new online tool this year that's supposed to make tax season easier for thousands of taxpayers in a dozen states. We'll dig into how this came, about how well it's working, who can use it, and whether this government pilot program could ever compete with a powerful private tax filing industry. This is the Big Take DC podcast from Bloomberg News. Filling in for Salaamosen, I'm Sarah Holder. We're going to get into that new IRS program. But to understand why it's such a big deal and why it took so long for the government to offer it, you need to understand the rise of TurboTax. So I sat down with my colleague Brody Ford.

He says. It was pretty user friendly, no extra bells and whistles. He did run into some trouble verifying his identity, but says it didn't take long to connect with a real person who could help him. All in all, he says the whole process took less than an hour. Easy free, done in an hour? Are we still talking about filing taxes? Today? On the show? The IRS is piloting a new online tool this year that's supposed to make tax season easier for thousands of taxpayers in a dozen states. We'll dig into how this came, about how well it's working, who can use it, and whether this government pilot program could ever compete with a powerful private tax filing industry. This is the Big Take DC podcast from Bloomberg News. Filling in for Salaamosen, I'm Sarah Holder. We're going to get into that new IRS program. But to understand why it's such a big deal and why it took so long for the government to offer it, you need to understand the rise of TurboTax. So I sat down with my colleague Brody Ford.

I write about the tech industry here, especially software companies that we don't often think about but end up running much of our life, like in this case taxes.

I write about the tech industry here, especially software companies that we don't often think about but end up running much of our life, like in this case taxes.

So it's April. Many Americans have just filed their taxes or will have to in the next week or so. How did it become so complicated for Americans to file their taxes?

So it's April. Many Americans have just filed their taxes or will have to in the next week or so. How did it become so complicated for Americans to file their taxes?

Since the dawn of time? It's been hard to do your taxes. Everyone's been mad at it. The IRS estimates that last year people spend an average of one hundred and fifty dollars and nine hours doing their taxes. It's a funny way we do it in the US. Right we have to write what we think we owe the government and send it to them, and then they say yes or no. Have that information somewhere, right, The thought being that, especially if you just have W two and come, this is a very simple calculation on how much money you owe. They can just spit out that number.

Since the dawn of time? It's been hard to do your taxes. Everyone's been mad at it. The IRS estimates that last year people spend an average of one hundred and fifty dollars and nine hours doing their taxes. It's a funny way we do it in the US. Right we have to write what we think we owe the government and send it to them, and then they say yes or no. Have that information somewhere, right, The thought being that, especially if you just have W two and come, this is a very simple calculation on how much money you owe. They can just spit out that number.

And nearly half of the country's taxpayers file using a do it yourself site like TurboTax. How did turbotox promise to revolutionize the process of filing one's taxes?

And nearly half of the country's taxpayers file using a do it yourself site like TurboTax. How did turbotox promise to revolutionize the process of filing one's taxes?

So their promise was a simple one that this was kind of the late eighties. There was this notion of like, hey, everything could be done better digitally. To some extent that was probably true, and that it would be a lot easier and even more fun to do it. You know, your taxes on the computer. Over time, what became interesting there is their promise went from.

So their promise was a simple one that this was kind of the late eighties. There was this notion of like, hey, everything could be done better digitally. To some extent that was probably true, and that it would be a lot easier and even more fun to do it. You know, your taxes on the computer. Over time, what became interesting there is their promise went from.

It would be easy to it would be free.

It would be easy to it would be free.

I don't know if you remember on Super Bowl commercials or you know YouTube targeted ads, you'll see people throwing the world free around the lot as it really to do in your taxes and TurboTax. That's the talking point they settled on, and that is I became so contentious because it's only if you have simple taxes.

I don't know if you remember on Super Bowl commercials or you know YouTube targeted ads, you'll see people throwing the world free around the lot as it really to do in your taxes and TurboTax. That's the talking point they settled on, and that is I became so contentious because it's only if you have simple taxes.

Think about just W two.

Think about just W two.

Income, not too many assets. You probably didn't sell any stock. Is it that it's available for free?

Income, not too many assets. You probably didn't sell any stock. Is it that it's available for free?

What's it like to use turbo tax? Can you walk us through? You open up the site, you start putting in your information.

What's it like to use turbo tax? Can you walk us through? You open up the site, you start putting in your information.

I did some gonzo journalism last week and I did my taxes. I am a TurboTax user, you know. I just put on my W two from Bloomberg and they scan it and they say, okay, here's the deductions you should do. It's a very fast, streamlined process, and it's very gamified.

I did some gonzo journalism last week and I did my taxes. I am a TurboTax user, you know. I just put on my W two from Bloomberg and they scan it and they say, okay, here's the deductions you should do. It's a very fast, streamlined process, and it's very gamified.

You know. Think about like if.

You know. Think about like if.

You've shopped on Timu or scrolled on TikTok with all these little like counters going like congrats, you're finishing your taxes so quickly. You did such a good job. What's funky about it is they just try to upsell you like crazy. Right. There are many many screens that will say things like, wait a second, do you want a second pair of eyes on this?

You've shopped on Timu or scrolled on TikTok with all these little like counters going like congrats, you're finishing your taxes so quickly. You did such a good job. What's funky about it is they just try to upsell you like crazy. Right. There are many many screens that will say things like, wait a second, do you want a second pair of eyes on this?

Do you want an expert to take a look? Did you do this in the year? Oh? Do you want audit protection?

Do you want an expert to take a look? Did you do this in the year? Oh? Do you want audit protection?

Right?

Right?

These things that you.

These things that you.

Don't even know to want that. No, until they suggest.

Don't even know to want that. No, until they suggest.

That, I'm like, dog, do I need audit protection? Right? You have this sense of wait a second, I probably need this thing.

That, I'm like, dog, do I need audit protection? Right? You have this sense of wait a second, I probably need this thing.

That's a way that you end up paying when maybe you actually didn't have to.

That's a way that you end up paying when maybe you actually didn't have to.

This all raises a question, how did we end up in a situation where the government knows what you owe, but you might have to use a service like TurboTax to figure it out. Brody says the government made a conscious choice not to provide the service when it struck up an agreement with private tax filing companies, a.

This all raises a question, how did we end up in a situation where the government knows what you owe, but you might have to use a service like TurboTax to figure it out. Brody says the government made a conscious choice not to provide the service when it struck up an agreement with private tax filing companies, a.

Kind of non aggression pact between private industry and the government. Was this thing called the Free File Alliance, where essentially the government will not create a direct filing service as long as these private tax companies think TurboTax, HNR, Block tax Layer offer tax preparation for free to middle and low income Americans, and they agreed that if you are below this certain income threshold, you can get your taxes for free. At the time, it was maybe seventy thousand, you know, like a relatively kind of middle of the road income, so a lot of people were included in this makes sense fair enough that you know, okay, you can have a functional monopoly in this as long as you use the profits you get from the higher income earners to subsidize the system for free for the middle and low income lo and behold, only about four percent of people ended up using the free service. And you can debate why that is. The companies will say, because well, they ended up wanting some of the more bells and whistles on the paid version. What a horde of regulators will say is because you designed the product in a way that funneled people away from the free version to the paid version, right, and regulators would say that they would do things that really do not pass the smell test, you know, like taking out advertisements that if you google free taxes, the first result would be the pay aid version. Rather than the actual free version you're looking for. Comedian Hassama naj has a whole episode about this of just trying to get the actual free version of turbo tax, but it's just like felt nearly impossible.

Kind of non aggression pact between private industry and the government. Was this thing called the Free File Alliance, where essentially the government will not create a direct filing service as long as these private tax companies think TurboTax, HNR, Block tax Layer offer tax preparation for free to middle and low income Americans, and they agreed that if you are below this certain income threshold, you can get your taxes for free. At the time, it was maybe seventy thousand, you know, like a relatively kind of middle of the road income, so a lot of people were included in this makes sense fair enough that you know, okay, you can have a functional monopoly in this as long as you use the profits you get from the higher income earners to subsidize the system for free for the middle and low income lo and behold, only about four percent of people ended up using the free service. And you can debate why that is. The companies will say, because well, they ended up wanting some of the more bells and whistles on the paid version. What a horde of regulators will say is because you designed the product in a way that funneled people away from the free version to the paid version, right, and regulators would say that they would do things that really do not pass the smell test, you know, like taking out advertisements that if you google free taxes, the first result would be the pay aid version. Rather than the actual free version you're looking for. Comedian Hassama naj has a whole episode about this of just trying to get the actual free version of turbo tax, but it's just like felt nearly impossible.

In Boom, we hit a paywall. We reached out into it. The company that owns TurboTax. In response to the allegations of upselling, they told us, quote, IRS Direct File is a solution in search of a non existent problem. Today, one hundred percent of Americans, regardless of income level or how complex their taxes are, can file their federal and state taxes completely free of charge. We are proud that over the last decade, we've helped more than one hundred and twenty four million Americans file their taxes completely free of charge.

In Boom, we hit a paywall. We reached out into it. The company that owns TurboTax. In response to the allegations of upselling, they told us, quote, IRS Direct File is a solution in search of a non existent problem. Today, one hundred percent of Americans, regardless of income level or how complex their taxes are, can file their federal and state taxes completely free of charge. We are proud that over the last decade, we've helped more than one hundred and twenty four million Americans file their taxes completely free of charge.

I think it's a very interesting talking point they use that essentially taxes are already free through our service, which is only true if you didn't have certain complicated situations like unemployment, income, student loan payments, owning a home. These very common situations that make it that taxes are not free.

I think it's a very interesting talking point they use that essentially taxes are already free through our service, which is only true if you didn't have certain complicated situations like unemployment, income, student loan payments, owning a home. These very common situations that make it that taxes are not free.

And so they're saying tax preparation is free. We're offering a better service for people that have these complicated needs.

And so they're saying tax preparation is free. We're offering a better service for people that have these complicated needs.

I think in a broader sense too, they just use that kind of classic talking point of government is inefficient. Government isn't going to be able to build this. Well, we've spent X number of years building this software that people by and large do find pretty streamlined and easy to use. The government's going to end up spending all this tax payer money to build something that already exists.

I think in a broader sense too, they just use that kind of classic talking point of government is inefficient. Government isn't going to be able to build this. Well, we've spent X number of years building this software that people by and large do find pretty streamlined and easy to use. The government's going to end up spending all this tax payer money to build something that already exists.

You know, they're a prolific lobby year.

You know, they're a prolific lobby year.

They've spent almost fifty million over the last two and a half decades.

They've spent almost fifty million over the last two and a half decades.

Critics of that lobbying include Senator Elizabeth Warren, who, in a statement to Bloomberg earlier this year, called into its actions an effort to quote try and stop free online tax filing because they're terrified that the billions in profits they make by scamming taxpayers are at risk. In response, and into It spokesperson told Bloomberg that the IRS E filing tool will quote cost taxpayers billions of dollars for something already free of charge, and with potentially disastrous effects on the finances of millions of Americans. It's worth noting last spring, the IRS estimated that the pilot would cost between around sixty four and two hundred and fifty million dollars, depending on how many taxpayers use it at the end of the day, whether it's due to lobbying or a lack of political will to fund an IRS e filing effort sooner. It's taken a really long time to get any kind of alternative up and running.

Critics of that lobbying include Senator Elizabeth Warren, who, in a statement to Bloomberg earlier this year, called into its actions an effort to quote try and stop free online tax filing because they're terrified that the billions in profits they make by scamming taxpayers are at risk. In response, and into It spokesperson told Bloomberg that the IRS E filing tool will quote cost taxpayers billions of dollars for something already free of charge, and with potentially disastrous effects on the finances of millions of Americans. It's worth noting last spring, the IRS estimated that the pilot would cost between around sixty four and two hundred and fifty million dollars, depending on how many taxpayers use it at the end of the day, whether it's due to lobbying or a lack of political will to fund an IRS e filing effort sooner. It's taken a really long time to get any kind of alternative up and running.

There was a conversation twenty years ago but whether the government should build what is effectively a TurboTax competitor, And now twenty five years later, we are just starting.

There was a conversation twenty years ago but whether the government should build what is effectively a TurboTax competitor, And now twenty five years later, we are just starting.

To do that.

To do that.

So that brings us to today and this new pilot program. How the government finally launched this free filing tool, and how it's going after the break, we're back. After decades of talk about the US government creating its own alternative to private e filing services, it's finally happening, at least for some Americans. How did the idea of a government run direct file option get off the ground.

So that brings us to today and this new pilot program. How the government finally launched this free filing tool, and how it's going after the break, we're back. After decades of talk about the US government creating its own alternative to private e filing services, it's finally happening, at least for some Americans. How did the idea of a government run direct file option get off the ground.

There was a couple of large regulatory actions against TurboTax that led them to pull out of this non aggression treaty, this free file Alliance, this jargony thing that meant that the private industry would agree to give taxes for free to low income people, but in practice never really worked and so eventually TurboTax pulled out of this system. They just said, we're not doing this anymore. Same for H and R Block and these are really the anchors of that system. So the collapse of this is really what led the government to say, hey, this program is not working. We have some fresh funding from Congress towards the IRS. Remember the Inflation Reduction Act. There was a large number of funds that went there. They said, this is a good moment to push forward and try to build this demo, and it's actually come together quicker than many expected. They expect that it could cover nineteen million taxpayers eventually.

There was a couple of large regulatory actions against TurboTax that led them to pull out of this non aggression treaty, this free file Alliance, this jargony thing that meant that the private industry would agree to give taxes for free to low income people, but in practice never really worked and so eventually TurboTax pulled out of this system. They just said, we're not doing this anymore. Same for H and R Block and these are really the anchors of that system. So the collapse of this is really what led the government to say, hey, this program is not working. We have some fresh funding from Congress towards the IRS. Remember the Inflation Reduction Act. There was a large number of funds that went there. They said, this is a good moment to push forward and try to build this demo, and it's actually come together quicker than many expected. They expect that it could cover nineteen million taxpayers eventually.

Right.

Right.

They hope one hundred thousand people participate this season, which is no small undertaking.

They hope one hundred thousand people participate this season, which is no small undertaking.

To get a closer look at the new pilot tool, I reached out to Aaron Slowey, who covers the IRS for Bloomberg Industry Group.

To get a closer look at the new pilot tool, I reached out to Aaron Slowey, who covers the IRS for Bloomberg Industry Group.

So it's only in twelve states. Most of those states are states with no income tax. There's four that are partnering with the IRS. I do have an income tax. It's New York, Massachusetts, California, and Arizona. So that's like location wise. The first requirement and then it's like low and moderate income type of returns, So the simplest type of returns, those are the people that are going to be able to qualify. And the IRS said that on purpose because it is in its pilot phase, so they just want to test it out to see if this is really going to work for people.

So it's only in twelve states. Most of those states are states with no income tax. There's four that are partnering with the IRS. I do have an income tax. It's New York, Massachusetts, California, and Arizona. So that's like location wise. The first requirement and then it's like low and moderate income type of returns, So the simplest type of returns, those are the people that are going to be able to qualify. And the IRS said that on purpose because it is in its pilot phase, so they just want to test it out to see if this is really going to work for people.

So erin how does it work?

So erin how does it work?

So they actually did a demo with some reporters and I was really surprised about how like the clean layout, the way that it looked. You go on and they actually first vet to see if your situation qualifies before you even get started to use the pilot and then after that you have to do a verification process and after that is when you could start your direct file return. And I heard it has taken as short as fifteen minutes to file your returns through direct file. Wow, so yes, it is a lot shorter than the average. Granted that was one person filing a return. I think depending on how prepared you are with your paperwork, it will just vary. But so far the RS has said they've had a lot of success with direct file.

So they actually did a demo with some reporters and I was really surprised about how like the clean layout, the way that it looked. You go on and they actually first vet to see if your situation qualifies before you even get started to use the pilot and then after that you have to do a verification process and after that is when you could start your direct file return. And I heard it has taken as short as fifteen minutes to file your returns through direct file. Wow, so yes, it is a lot shorter than the average. Granted that was one person filing a return. I think depending on how prepared you are with your paperwork, it will just vary. But so far the RS has said they've had a lot of success with direct file.

How is the IRS measuring the program success?

How is the IRS measuring the program success?

As of mid March, they've had about fifty one thousand people sign up to use direct file. Now, the caveat with that is that not all those people have filed their returns yet, so we'll see. I guess once tax filing is using closes how many people actually file their returns using direct file. But part of the battle that the IRS is going to have is because they're keeping it in such a limited size, both just limiting the number of states and the type of tax situations that can use direct file, Like, they aren't going to be like look at the sheer number of people that used this pilot. So I think the bottom line for the IRS, I think they're going to wonder do people like it and did it work? It seems like very fundamental questions, but the like with the way that government run websites have gone before, that's what they need to get answered.

As of mid March, they've had about fifty one thousand people sign up to use direct file. Now, the caveat with that is that not all those people have filed their returns yet, so we'll see. I guess once tax filing is using closes how many people actually file their returns using direct file. But part of the battle that the IRS is going to have is because they're keeping it in such a limited size, both just limiting the number of states and the type of tax situations that can use direct file, Like, they aren't going to be like look at the sheer number of people that used this pilot. So I think the bottom line for the IRS, I think they're going to wonder do people like it and did it work? It seems like very fundamental questions, but the like with the way that government run websites have gone before, that's what they need to get answered.

What do this program? Skeptics say?

What do this program? Skeptics say?

The two big skeptics are the Republicans and the tax prep companies. People are really concerned about the cost. I think there's a lot of fear just surrounding the IRS's reputation. They don't want it to be an enforcer collector and prepare.

The two big skeptics are the Republicans and the tax prep companies. People are really concerned about the cost. I think there's a lot of fear just surrounding the IRS's reputation. They don't want it to be an enforcer collector and prepare.

The possible cost and the IRS's reputation aren't the only challenges for the program. The pilot didn't launch until March, which critics say was too late to capture many taxpayers filing the season. Plus, as Brody points out, it's limited in scope.

The possible cost and the IRS's reputation aren't the only challenges for the program. The pilot didn't launch until March, which critics say was too late to capture many taxpayers filing the season. Plus, as Brody points out, it's limited in scope.

Keep in mind it is only for federal returns, so your state return you'll still have to do somewhere else. Maybe you'll have to go crawling back to turbo tax. So I mean the headline that into it would be having their fingers crossed for is that nobody ends up using it right right, And I mean that's a total possibility, because at the end of the day, a big rule in software is that people stick to what they know. I think, if you've been filing your taxes a certain way for a number of years, the odds of you trying the experimental new method is pretty low. So I'm really watching for adoption. I mean, do people actually use this thing? Do we see some crazy complaints around, like, hey, this messed up my taxes. I think a really famous kind of government failure with technology was the Healthcare dot gov.

Keep in mind it is only for federal returns, so your state return you'll still have to do somewhere else. Maybe you'll have to go crawling back to turbo tax. So I mean the headline that into it would be having their fingers crossed for is that nobody ends up using it right right, And I mean that's a total possibility, because at the end of the day, a big rule in software is that people stick to what they know. I think, if you've been filing your taxes a certain way for a number of years, the odds of you trying the experimental new method is pretty low. So I'm really watching for adoption. I mean, do people actually use this thing? Do we see some crazy complaints around, like, hey, this messed up my taxes. I think a really famous kind of government failure with technology was the Healthcare dot gov.

Yeah, the Obamacare role. Yeah.

Yeah, the Obamacare role. Yeah.

I mean that is like one of those moments where you know, people walked away and said Wow, maybe the government can't build technology. And I think, you know, I've seen some articles where people seem pretty rosy on the new system, but if we have some situations like that, it could really dent it in the future.

I mean that is like one of those moments where you know, people walked away and said Wow, maybe the government can't build technology. And I think, you know, I've seen some articles where people seem pretty rosy on the new system, but if we have some situations like that, it could really dent it in the future.

Yeah.

Yeah.

And since the government has promised and finally offered this free tax filing service, how has TurboTax reacted?

And since the government has promised and finally offered this free tax filing service, how has TurboTax reacted?

You know, so they say that, hey, this is a non event to us, This is a very small shred of you know, our user base.

You know, so they say that, hey, this is a non event to us, This is a very small shred of you know, our user base.

To that point into it told us, quote, IRS direct file will not offer any improvement over filing options currently available to and used by taxpayers, nor do we believe it will have a material impact on the industry or our financial results.

To that point into it told us, quote, IRS direct file will not offer any improvement over filing options currently available to and used by taxpayers, nor do we believe it will have a material impact on the industry or our financial results.

But what it is to them is a long term risk, right, because they rely on TurboTax as a kind of new user pipeline and as a way to get data about the way that taxes look and improve their product for others.

But what it is to them is a long term risk, right, because they rely on TurboTax as a kind of new user pipeline and as a way to get data about the way that taxes look and improve their product for others.

The idea that.

The idea that.

Nineteen million of that group are going to go over to a free federal service, that is so and leah risk to.

Nineteen million of that group are going to go over to a free federal service, that is so and leah risk to.

Turbo tax and to its bottom line. Absolutely Thanks for listening to the Big Take DC podcast from Bloomberg News. I'm Sarah Holder. This episode was produced by Julia Press. It was edited by Aaron Edwards and Laura Davison. It was mixed by Ben O'Brien. It was fact checked by Alex Sugia. Naomi Shaven is our senior producer. Michael Shepherd, Wendy Benjaminson and Elizabeth Ponso provide editorial direction. Nicole beamsterbor is our executive producer. Sage Bauman is Bloomberg's head of podcasts. Please subscribe and review The Big Take DC wherever you listen to podcasts. It helps new listeners find the show. Thanks for listening. We'll be back next week.

Turbo tax and to its bottom line. Absolutely Thanks for listening to the Big Take DC podcast from Bloomberg News. I'm Sarah Holder. This episode was produced by Julia Press. It was edited by Aaron Edwards and Laura Davison. It was mixed by Ben O'Brien. It was fact checked by Alex Sugia. Naomi Shaven is our senior producer. Michael Shepherd, Wendy Benjaminson and Elizabeth Ponso provide editorial direction. Nicole beamsterbor is our executive producer. Sage Bauman is Bloomberg's head of podcasts. Please subscribe and review The Big Take DC wherever you listen to podcasts. It helps new listeners find the show. Thanks for listening. We'll be back next week.