SALT LAKE CITY, UTAH – Attorney General Sean D. Reyes joined a letter to U.S. Treasury Secretary Janet Yellen over the recently launched IRS Direct File pilot project. The coalition of attorneys general, which was led by the State of Alabama, requests that the Treasury Department and IRS “begin consulting with [them] on this matter due to the myriad of legal issues and practical concerns that are raised by this IRS action.”
The Direct File program was created to prepare and file tax returns for Americans. This program stemmed from the passage of the 2022 Inflation Reduction Act, where the Executive Branch was given $15 million for an “independent third party” to study “the overall feasibility, approach, schedule, cost, organization, and design” of such a project. In selecting the party to study a potential framework for this program, the IRS chose New America, which did not meet the criteria of the congressionally mandated independence. Also, Congress did not intend for a program to be formed out of the funds that were appropriated from the legislation, but Direct File was, nevertheless, established.
In their letter, the attorneys general raise several issues with the IRS program. One of those issues is their belief “that the exorbitant costs contrasted with the low consumer interest is reason enough for the IRS to halt any further spending on this program.” Another issue highlighted was that individual states “have not budgeted to build systems that would integrate with IRS Direct File, and it is unlikely that states would have the capacity, resources, or interest to do so when the system does not provide for state filing.” One of the consequences of the lack of integration between state and federal tax returns is that “some taxpayers with state tax-filing obligations will simply not file their state tax returns if they use an IRS Direct File system that fails to offer them a simultaneous state tax return.” Finally, the attorneys general note that they “see no clear and evident authority that would permit the IRS to create and maintain a ‘tax preparation’ system.”
Joining Utah and Alabama on the letter were the States of Georgia, Idaho, Iowa, Mississippi, Montana, Nebraska, South Carolina, Texas, and West Virginia.
