Treasury announced in a new report to Congress that the IRS’s Direct File tool will be suspended in favor of improving Free File — the IRS’s long-standing partnership with private tax software companies
1/16/26 – “The report announces that the IRS will suspend Direct File,” Treasury said in the report, which is dated October 2 but was released November 5. “The report recommends refocusing IRS efforts on strengthening existing free filing programs, particularly Free File, while engaging stakeholders to modernize and promote awareness of Free File.”
The IRS was tasked with drafting the report by the One Big Beautiful Bill Act (P.L. 119-21) and with presenting it to Congress by October 2. It’s unclear whether lawmakers were given the report by that date.
Direct File, launched as a limited-scope pilot in 2024, allowed taxpayers with simple returns to file directly through the IRS. Expanded to address more tax situations in 2025, the tool received positive user reviews but drew fewer filers than the agency anticipated. The IRS said that misinformation surrounding the fate of the tool contributed to hurting uptake.
In the report, Treasury said a combination of “low participation and relatively high costs and burdens on the federal government” were the main factors behind the decision to shutter the tool. The department estimated that the program cost $41 million to operate for tax year 2024, or at least $138 per tax return.
The report also recommended increasing outreach for Free File and convening a “Free Filing Modernization Summit” to “improve existing free filing options, explore new approaches, and expand the number of taxpayers filing for free.”
States Informed
The report came within days of the IRS telling states participating in Direct File that the free filing tool won’t be returning in 2026 or the foreseeable future.
“IRS Direct File will not be available in Filing Season 2026. No launch date has been set for the future,” IRS product manager Cindy Noe wrote in a November 3 email to state revenue departments that was viewed by Tax Notes.
The email, sent to all 25 states participating in Direct File, was the first confirmation that the program is being shuttered by the Trump administration following former IRS Commissioner Billy Long’s claim from August that the program was “gone.”
Taxpayers who filed through Direct File will no longer be able to access their returns through the program’s webpage but can obtain a return transcript via their online account or by mail, according to the IRS email. The Direct File webpage was inactive as of press time.
A total of 296,531 individuals successfully filed 2024 tax returns through Direct File this year.
Treasury Secretary Scott Bessent, who is also acting commissioner of the IRS, was asked during a November 5 press briefing about the rationale behind the move to cancel the program. He explained that the decision was a combination of shifting priorities, low uptake, and trust in other filing platforms.
“I think that we have better alternatives, it wasn’t used very much, and we think the private sector can do a better job,” Bessent said.
Former IRS Commissioner Daniel Werfel, who oversaw the creation of Direct File, said he wasn’t surprised that the program is being discontinued.
“At a minimum, I don’t think it was very popular with Republicans. But also — the shutdown — it’s another thing on the plate [for the IRS], and you have to start downsizing,” Werfel told Tax Notes November 5.
Divisive
Direct File was the target of criticism from commercial tax return preparation giants like Intuit and H&R Block, which called it a costly and unnecessary overreach of IRS authority. Republican lawmakers were also vocal in their opposition to the program, writing multiple letters urging its dismantling.
Several companies that participate in Free File, or were once part of the program, are members of the American Coalition for Taxpayer Rights — a group of tax software companies that lobbied against Direct File — including TaxSlayer and TaxHawk.
“It’s not surprising since the Trump administration sabotaged Direct File all through this year’s filing season at the urging of tax prep monopolies like TurboTax,” said Adam Ruben of the Economic Security Project, which supported the tool. “Trump’s billionaire friends get favors while honest hardworking Americans will pay more to file their taxes.”
The IRS team behind Direct File was dispersed through a combination of resignations and other separations stemming from the Trump administration’s efforts to shrink the federal workforce.
Several Democratic lawmakers had advocated for Direct File, calling it a necessary public service that countered the cost of filing through major return preparers.
In a November 4 statement, Senate Finance Committee ranking member Ron Wyden, D-Ore., slammed the decision to shut down the program.
“The Trump administration operates like a laser-guided weapon aimed at any useful public service that saves Americans time and money,” Wyden said. “The only thing Trump accomplishes by doing this is stealing from working class taxpayers to pad the profits of giant, rent-seeking tax software companies.”
Long Awaited
House taxwriters’ first draft of the OBBBA had sought to explicitly end Direct File — but the language was removed amid negotiations over what provisions in the massive bill might clash with the Senate’s Byrd rule restricting what kind of provisions can be included in a reconciliation bill.
As part of the Direct File report, the agency surveyed taxpayers regarding what they would like to see in a free filing platform. But if respondents said they would be interested in a tool like Direct File, the survey asked if that support would continue knowing that “setting up and running the program is expected to have an initial cost to the federal government of at least $10-$20 per return processed.”
In its report, Treasury said it received more than 50,000 responses to the survey during the two weeks that the survey link was available, “reflecting strong apparent interest in free filing options.”
“Because the results are not statistically representative, they are being used for informational purposes only and are not incorporated into this report,” Treasury said. “A new, statistically representative survey will be conducted to better assess taxpayer interest in both a taxpayer-funded, government-run service and private-sector free filing options.”
