While the House-passed One Big Beautiful Bill Act (OBBBA) included language to terminate Direct File, the final version dropped it, instead approving $15 million for a task force to explore a replacement.
That should raise red flags. After all, it was a similar $15 million “study” provision in the Inflation Reduction Act (IRA) that led to the stealth creation of Direct File in the first place. But the IRS jumped the gun and quietly developed Direct File without receiving any congressional authorization to do so. Evidence suggests the IRS was dishonest with lawmakers about the program’s development, setting a troubling precedent for transparency and accountability. This action represented not only an overreach but also a diversion of scarce resources from long-standing congressional priorities for the IRS, such as improving taxpayer services, modernizing core technology systems, and addressing the backlog of unanswered taxpayer correspondence.
The Direct File project was launched to offer a no-cost alternative to commercial tax filing options, but it came with a hefty taxpayer-funded price tag even as the IRS underreported the cost of the program. While the IRS claims to have spent $24.6 million developing and operating Direct File, the Government Accountability Office notes that this assessment fails to include $8.8 million in additional costs incurred by the Office of Management and Budget (OMB). It is also unclear whether the IRS factored in the hundreds of hours of staff training required to support Direct File. While the IRS claimed Direct File would cost about $26.60 per user, TIGTA finds that it has cost $78.87 per user thus far.
Worse, Direct File’s pilot had a narrow scope and served only a fraction of taxpayers. While residents of twelve states were eligible to participate, only four of those states had an income tax—and just three chose to integrate with the program. The pilot was also limited to relatively simple tax situations, excluding millions of filers with more complex income, deductions, or credits. Expanding the software to accommodate the full range of tax scenarios faced by tens of millions of Americans would have required significantly more development—and much higher costs.
Even with its limited scope, Direct File raised concerns about IRS mission creep into the private sector and the conflict of interest that arises when the tax collector also prepares your return. Given the complexity of the tax code, taxpayers need clear guidance and independent tools, not a system where the IRS calculates your bill and then enforces it.
OBBBA requires the Treasury Department to report back to Congress next year on key questions related to filing options:
The cost of enhancing public-private partnerships like Free File to serve up to 70% of taxpayers and replace IRS-run programs like Direct File.
Taxpayer preferences between a government-run program and a free private-sector service.
The feasibility of a new, consistent, and simplified approach to free filing across providers.
The full cost of developing and running a government-run direct e-file system, including variations based on income and return complexity.
As noted in the text, the IRS already has access to a truly free tax filing solution. Direct File duplicates services already available through the Free File Alliance, a public-private partnership that enables eligible Americans to file for free at no cost to taxpayers. About 70% of American taxpayers are eligible to use Free File, which has 98% user satisfaction and has saved taxpayers $2.1 billion in out-of-pocket costs over two decades. Unlike Direct File, this actually reduces IRS administrative burdens.
Instead of squandering $15 million on a new study that significantly overlaps with the previous study from the IRS, the IRS should use its existing budgetary resources to enhance the visibility of Free File. The Government Accountability Office reported that one-third of taxpayers are not aware that they are eligible to use Free File, in part because the IRS has failed to promote the product as is required.
As NTU Foundation’s Debbie Jennings explained in her analysis, Goodbye and Good Riddance to Direct File, there are plenty of good reasons why Direct File’s shutdown is necessary and appropriate, but stronger safeguards are needed to ensure that the IRS cannot revive the program—or launch similar unauthorized ventures—without explicit congressional approval.
Lawmakers are taking action to protect taxpayers from a repeat. Senator Marsha Blackburn (R-TN) along with Representatives Adrian Smith (R-NE) and Chuck Edwards (R-NC) have introduced the Fostering Autonomy in Independent Returns by Prohibiting Redundant and Extralegal Programs (FAIR PREP) Act of 2025 (S. 96/H.R. 451). This reform legislation would prevent the IRS from launching or maintaining a government-run tax preparation program. The bill also makes clear that the Department of the Treasury would be prohibited from awarding grants, entering into contracts, or engaging in other transactions to develop or operate an electronic tax preparation service.
The IRS ought to focus on improving customer service and modernizing its outdated technology, not creating duplicative tax prep services that could cost taxpayers hundreds of millions of dollars a year. The commonsense FAIR PREP Act from Senator Blackburn and Representatives Smith and Edwards would ensure that the IRS stays true to its core responsibilities rather than competing with the private sector.