The IRS plans a limited rollout of its free e-file tax return system with invitations to select taxpayers

WASHINGTON (AP) — The IRS plans to invite selected taxpayers across 13 states to try the agency’s pilot program. Free electronic tax return system Starting in January.

The agency estimates that hundreds of thousands of taxpayers will participate in the limited version of the program for the 2024 filing season.

The IRS is facing severe backlash from private tax preparation companies that have made billions from charging people to use their software. The introduction of a government-run option could turn the industry upside down and radically change the way taxpayers interact with the IRS.

All eyes are on the agency to get it right – and avoid bringing up what reminds us of The disastrous healthcare.gov website It was introduced a decade ago, when many users faced challenges accessing and using the site.

“The plan is to roll it out in larger and larger increments, consistent with how products like this are rolled out in the private sector,” IRS Commissioner Daniel Werfel said on a call with reporters reviewing the latest details of the program.

“We want to make sure it’s an easy-to-understand pilot,” Werfel said. He added that data from the pilot program will be “imperative” in determining the program’s usefulness.

The agency plans to work with nonprofits, congressional offices, states and others to identify taxpayers who qualify for the pilot program, based on the types of income, tax credits and deductions they claim.

Werfel said the pilot is intended to be “just another option for taxpayers” to file their taxes. “Our work to evaluate the feasibility of direct file is just one of many examples of how we are working to transform the IRS.”

The IRS was tasked with looking into how to create a “direct file” system as part of the funding it received from the Inflation Reduction Act, which President Joe Biden signed into law last summer. The IRS was given nine months and $15 million to report on how to implement such a program.

The IRS published a feasibility report in May outlining taxpayer interest in direct file, how the system could work, its potential cost, operational challenges, and more.

One major criticism of the program is that Live Trial File only covers individual federal tax returns and does not prepare state returns. However, IRS officials said they are working with Arizona, California, Massachusetts and New York to bring forward the 2024 season to incorporate state taxes into the pilot program.

Organizations like Code for America work with states to create their own filing programs to integrate into the Live File tool.

Gabriel Zucker, associate policy director for tax benefits at Code for America, said his company is working with the Arizona Department of Revenue and the New York Department of Taxation and Finance to create a state filing tool.

Zucker said the states are “really paving the way for this exciting project and finding a way to make a state filing in the context of this.”

“This is a team committed to getting government technology right,” he said.

Taxpayers in nine other states that do not have an income tax — Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming — may also be eligible to participate in the pilot program, according to the IRS.

More details about who they choose to invite to the program will be released in January, Werfel said.

“For that first group of taxpayers, we are still working on the details — to find the right size and the best approach.”