A MATH PROBLEM? There were some definite positives for Direct File this season, perhaps most notably that the initiative didn’t have any of the big technology failures that have plagued previous online government launches. But it’s also true that it wasn’t very widely used — those 141,000 successfully submitted tax returns is out of 19 million eligible taxpayers in a dozen states, or about 0.7 percent as private-sector critics of the program like to point out. And Werfel added another reason to potentially question the Direct File math on Friday: Those 141,000 returns also came out of some 3.3 million people who at least took a spin on the pilot program, meaning that 95 percent of those who checked out the program ended up filing through other means. All of that has fed into criticism of Direct File from private tax preparation firms, some of whom also believe that the IRS is underselling how much this year’s pilot program has cost. TurboTax “files millions of completely free tax returns each year and has delivered 124 million free tax returns over the last 10 years,” said Rick Heineman, a spokesperson for its parent company, Intuit. For their part, Direct File backers say there’s a perfectly logical reason why lots of people took a look at the pilot program, but didn’t end up using it to press submit — very good public relations. Werfel himself said Friday that many of the people who went to Direct File but didn’t use it to submit a return weren’t actually eligible. And as you might recall, the IRS chief was just one of the officials who spent lots of time these past weeks promoting the pilot program — Wally Adeyemo, the deputy Treasury secretary, also headline a fair share of events, and Democratic lawmakers pitched in, too. So for advocates, the fact that lots of people who couldn’t actually use Direct File still gave it a look is a sign of successful advertising. WHAT ABOUT THE TAX CONSEQUENCES? Ten House GOP tax writers reached out to Treasury Secretary Janet Yellen on Friday, worried that a decision on digital tax rules by the U.S. trade representative could have a range of negative tax implications. The backstory: Katherine Tai, the U.S. trade representative, pulled America’s support for digital trade proposals at the World Trade Organization, an idea supported by progressive groups and lawmakers but opposed by Silicon Valley (and a bipartisan group of lawmakers as well). Now, those 10 Republicans on the House Ways and Means Committee also believe there will be some downstream tax effects of Tai’s decision, in that letter first reported by Bloomberg Tax. In essence, the GOP tax writers argue that the USTR decision could force companies to move some of their digital operations outside of the U.S. — something they noted was contrary to President Joe Biden’s own budget proposals, which called out any “undesirable incentives to locate certain economic activity abroad.” American companies putting facilities and even intellectual property abroad because of this USTR move also undercuts the rationale for the first pillar of the global tax deal negotiated through the Organization for Economic Cooperation and Development, the Ways and Means Republicans wrote. Pillar One seeks to reallocate the taxing rights over the profits of big multinational companies, to in effect give countries more of a chance to collect from corporations that didn’t previously have a taxable presence within their borders. (The OECD and Pillar One supporters have had little recent luck generating support for that plan, but that’s a story for another day.) Finally, the GOP tax writers argue that Tai’s decision will simply take investment abroad that would otherwise stay in the U.S. “In short, the reversal on digital trade policy by USTR reflects an acquiescence with U.S. tax base erosion through increased foreign tax payments in lieu of tax payments to the U.S. Treasury,” the GOP lawmakers wrote in the letter organized by Rep. Randy Feenstra (R-Iowa).
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