The New York State Department of Financial Services (DFS) today issued a report on the Department’s year-long investigation into the low participation rates in a program created by the U.S. Internal Revenue Service (“IRS”) intended to aid more than 100 million disadvantaged taxpayers. Specifically, the report focuses on the IRS’s Free File Program (“Free File Program” or “Program”), which assists disadvantaged taxpayers in filing tax returns at no cost, and the circumstances that led to unacceptably low participation rates in that initiative. The report found that five tax preparers, Intuit, H&R Block, TaxSlayer, TaxHawk, and Drake Enterprises, deliberately hid website landing pages for the Free File Program, and the lack of federal oversight and funding undermined the program, leading to startlingly low participation in the program: only 2.5 million of 100 million eligible taxpayers used the Program last year.

“The Free File Program is broken and was exploited by commercial tax preparer companies to drive their own profits at the expense of low-income taxpayers. This is yet another blow to the public trust,” said Superintendent of Financial Services Linda A. Lacewell. “Consumers who most needed a no-cost simple means to file their taxes were left in the cold. We call upon the federal government to work with states to develop a fair, accessible, and modern tax filing system.”

“I applaud the Department of Financial Services for its thorough investigation.” Commissioner Michael Schmidt of the New York State Department of Taxation and Finance. “The efforts to suppress Free File participation are deeply troubling, and follow years of IRS underinvestment in promotion of the Free File Program. The gap between the theory and practice of the Free File is staggering, with just 2.5 million of the roughly 100 million eligible taxpayers successfully utilizing the program nationwide. I urge the IRS to aggressively market and educate the public on the Free File Program, which would keep hard-earned dollars in the pocketbooks of working families. In New York, we’ve shown that this is possible, increasing participation by 40% in just the last year and saving New Yorkers an estimated $45 million.”

Consumer advocates applauded DFS's report: “This groundbreaking New York DFS investigation validates and corroborates what journalists and consumer advocates have long suspected,” said Chuck Bell, programs director for Consumer Reports. “Tax preparation services like Intuit and H&R Block are steering millions of low- and moderate-income taxpayers away from using the IRS Free File Program, and manipulated search engine results to hide information about the no-cost filing option.”

The Report is a product of a lengthy investigation by DFS into the Free File Program, following a series of media reports published about the Program, including one report in April 2019 that claimed five tax preparers who participated in the Program had hid their landing pages for the Program from search engine results, a practice known as “deindexing.” Deindexing directly interfered with taxpayers’ ability to find and utilize the Program.

Following the DFS investigation, the Department’s report found the following:

• Intuit, H&R Block, TaxSlayer, TaxHawk, and Drake Enterprises “deindexed” or deliberately edited the code in their landing pages under the program to hide those landing pages from taxpayers from search engine results, in direct contravention of the spirit of the Free File Program;
• Deindexing deprived consumers of a simple method by which to access the Program;
• Tax preparation companies created and marketed their own products as “free” in order to lure customers away from the Free File Program while upselling those same customers into more costly products;
• Taxpayers have experienced outright confusion in navigating through commercial tax preparers’ websites while in search of the Free File option; and
• The IRS provided insufficient oversight, funding, and marketing of the Free File Program.

DFS issued this report to inform and educate consumers of their rights to file federal and state tax returns at no cost through the Free File Program, as well as highlight the business practices undertaken by members of the tax preparer industry in undermining consumers’ usage of the Free File Program.

For more information on the Free File program, we encourage New Yorkers to use the IRS Free File Program. Taxpayers can use the IRS’s lookup tool to determine which Free File product is right for them. Information concerning free filing options for New York state taxes is available at the New York State Department of Taxation and Finance’s website.

For a copy of the DFS Report on Investigation of Free Tax Preparation and Filing Services, click here to go to the DFS website.

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