Direct File Act of 2026

The Direct File Act of 2026 (H.R. 7806) was introduced in the House on March 4, 2026, by Rep. Brad Sherman (D-CA-32) with 122 cosponsors — all Democrats. The bill permanently codifies the IRS Direct File pilot program as a permanent service, prohibits the IRS from entering into agreements that restrict its ability to offer free tax preparation and filing, and effectively creates a permanent government competitor to private paid tax preparation software. The bill has been referred to the House Committee on Ways and Means and has an identical companion bill in the Senate (S. 3948). This is early-stage legislation with no committee hearings, markups, or floor votes yet completed. The money trail here is structural, not direct. The bill does not authorize or appropriate any specific funding amount — it mandates that the IRS offer Direct File as a permanent service. IRS operations are funded through annual appropriations (not this authorization bill). The economic mechanism is competitive displacement: a free, government-run e-filing option siphons customers away from paid services, reducing the addressable market for Intuit's TurboTax and H&R Block's tax preparation products. Intuit ($INTU) and H&R Block ($HRB) are the two primary publicly traded pure-play companies in the paid consumer tax preparation market. Intuit's TurboTax segment generates roughly 60% of total revenue, and H&R Block generates 80-85% of revenue from tax preparation. Both have significant exposure to simple return filers (W-2 income, standard deduction, child tax credit) — exactly the demographic most likely to switch to a free, simple government alternative. Real market data shows both stocks are already under significant pressure. $INTU closed at $387.85 on April 30, 2026 — down 10.3% in the last 30 days and trading near the bottom of its 52-week range ($342.11 — $813.70). $HRB closed at $31.05, down 2.17% in 30 days, also near the low end of its 52-week range ($28.16 — $64.62). While recent price action reflects a convergence of factors (mixed earnings, broader tech weakness, and this legislative headwind), the Direct File bill adds a clear structural overhang. The timeline for this bill is uncertain. It has 122 cosponsors but all are Democrats in a divided 119th Congress with a Republican-controlled House and Senate. The bill would need to pass both chambers and be signed by the President — a low-probability outcome in the current Congress. However, the bill's introduction and strong Democratic support signal that the policy issue will remain active through 2027 and into the 120th Congress.