Not long after Tax Day this year, a government report is due to Congress that could be a first step in helping Americans pay less to file their annual tax returns. The report could set up a collision between lawmakers and their campaign donors in the lucrative tax preparation business—as well as the giant lobbying firms that advocate for their interests on Capitol Hill.
For decades, financial software companies—led by Intuit, owner of TurboTax—have waged a formidable influence campaign to block the Internal Revenue Service (IRS) from offering an officially-supported, free tax filing tool online. The IRS currently offers an array of third-party tools that are free for households that earn $73,000 and under, but the options, sponsored by little-known companies with names like TaxSlayer, are used by only 2-3% of taxpayers. The little-used IRS program means hefty revenue—estimated at $1 billion annually—for the market-dominating Intuit, which also owns QuickBooks and Credit Karma, from customers who start using one of its heavily-advertised products only to encounter fees along the way.
Intuit’s spending on federal lobbying reached a new high of more than $3.5 million last year, OpenSecrets News reported, as the company faced heightened scrutiny from Sen. Elizabeth Warren (D-Mass.) and House lawmakers like Rep. Katie Porter (D-Calif.) into the company’s “revolving door” hiring practices.
The tax prep companies’ lobbying campaign had a setback last year. In August, Sen. Warren announced that the Democrats’ Inflation Reduction Act (IRA), signed that month by President Biden, included $15 million for a “task force to design an IRS-run free ‘direct efile’ tax return service,” building on legislation she had introduced. The report, including feedback from an independent third party on the feasibility of the program, is due to Congress within nine months of the IRA’s enactment—at the latest, by May 16, 2023.
If the U.S. joined other wealthy countries in offering a free government-sponsored tax filing service, not only could far more taxpayers use the official option, but also the U.S. could move a step closer to having the IRS provide a pre-populated return for taxpayers to approve, slashing the cost and stress of the process. A study highlighted by ProPublica journalists Justin Elliott and Paul Kiel found that somewhere from 41% to 48% of all returns could be pre-filled by the IRS. Intuit said in a statement this month that such a government-run option would be “a waste of taxpayer dollars.”
Intuit isn’t the only company with a financial interest in keeping Tax Day as usual. The law firm Brownstein Hyatt Farber Schreck (BHFS) was the number one spender last year on federal lobbying, and since December 2018 it has lobbied for Intuit subsidiary Credit Karma, which says it shares data with its parent company. BHFS reported $240,000 in lobbying for Credit Karma last year, tied with government affairs shop Ice Miller Strategies for the most Intuit spent with an outside firm. With BHFS, Intuit’s lobbyists included policy director Zachary Pfister, a former House Democratic staffer and Democratic bundler. Among the specific lobbying issues that BHFS mentioned in the fourth quarter of 2022, according to disclosures filed with the Senate, was “Promote consumer access to responsible financial product.” Other reports last year show BHFS lobbyists mentioning issues of data privacy and “Support FINTECH innovation and consumer protections.”
In January, BHFS threw its 12th annual fundraiser for the Democratic Senatorial Campaign Committee (DSCC), raising $525,000, according to an item in Punchbowl News. Hosts included Nadeam Elshami, a BHFS policy director and former communications director for House Speaker Nancy Pelosi who lobbied for Intuit last year. Last year’s BHFS fundraiser, held at the Charlie Palmer steakhouse by the Capitol, saw at least two BHFS lobbyists for Intuit mixing with Senate Democrats: Pfister and attorney Katelynn Bradley, a former senior counsel with the House Committee on Financial Services.
