By Kenneth Corbin
Does the crowded commercial tax-preparation market really need another entrant? Maybe, if there is no asterisk next to its "free" service.
That is the bet behind Prime Meridian, an artificial-intelligence-powered tax service launching widely today and open for business for the 2025 filing season after a soft rollout. The company says it aims to process at least tens of thousands of 2025 returns this year.
Prime Meridian, based in Palo Alto, Calif., is backed by the venture-capital firm General Catalyst and has taken investments from Belief Capital and Calibration Capital, as well as an array of angel investors.
It also is working with one of the ultimate insiders in the tax world, former IRS Commissioner Danny Werfel, who is a strategic advisor to the company.
In an interview with Barron's Advisor, Werfel likened the development of Prime Meridian to Direct File, the IRS-built and operated free tax-filing service that rolled out during his tenure at the commission and has subsequently been dismantled by the Trump administration.
Werfel is a passionate advocate for free-filing services that don't come with strings attached or try to upsell users to paid products. He says his involvement with the Prime Meridian project came with three conditions: that the service would be genuinely free; that Prime Meridian committed to never harvest user data for commercial purposes; and that the AI powering the service knows its limits and doesn't attempt to handle especially complicated tax returns.
"Taxes are high stakes," Werfel says. "When I talk about responsible AI, it's critical that the AI stop short of imputing or hallucinating answers in situations when the inputs to it are overly complex," he adds. "What I want to make sure is that the solution handles what it can handle and doesn't spit out an answer that it can't handle."
Like the IRS' Direct File, Prime Meridian is available for a limited range of tax situations, a list that Werfel says should grow as the service continues to develop. At launch, Prime Meridian says it can handle basic returns for full-time workers as well as many tax situations involving contractors and business owners, including K-1, 1099, and investment income.
The business model is still a work in progress. Werfel says the core tax offering is intended to remain free, but that Prime Meridian could roll out other products and services for a cost. The company says it "sees opportunities across cards, banking, and investing" enabled by AI.
For Werfel, the core tax service comes as a private-sector response to the government's termination of Direct File and its subsequent pivot to Free File, a longstanding but troubled public-private partnership between the IRS and a handful of commercial tax providers that offer a nominally free filing service.
The number of tax services participating in Free File has dwindled over the years, and allegations have emerged that some of those providers have shared user data with companies to target ads to taxpayers. Critics have questioned whether they are legitimately "free" services when users frequently report running into mandatory upcharges if they want to proceed with their returns.
Direct File was intended to avoid those pitfalls, but the program ran into staunch opposition from Republicans in Washington, some of it stoked by the lobbying efforts of the commercial tax-prep industry.
Werfel says he believes that several of the attacks on Direct File were unfair, or in the case of the charge that taxpayers would be required to use it, simply untrue. He says that accusations that the program was prohibitively expensive and underused were premature, given that the IRS was still building and marketing a very young initiative that, in Werfel's telling, was highly popular.
"Often the critics would say there's no interest in this. That is not accurate," he says. "When I went out and I spoke to communities around the country about what was going on at the IRS I heard loud voices hoping for the IRS to scale Direct File."
As to the broader situation at the IRS, staffing cuts and other reductions will inevitably have an impact on some taxpayers' experiences for the 2025 filing season. The IRS National Taxpayer Advocate reported last year that the agency had seen its workforce shrink by more than 25%
"When the IRS capacity is reduced through budget cuts and staff reductions and paused IT projects, your taxes don't go down," Werfel says. "On the customer-service side it means that if you run into an issue it will be more difficult to get that issue resolved with the IRS."
Filers submitting returns with no obvious errors or other glaring red flags likely won't notice any service disruption, he says. However, the resource drain means that the IRS will have less money and manpower to pursue potential tax cheats and collect money owed to the government.
"On the collections and enforcement side, those that choose to play by the rules will shoulder more of the burden of funding of our government than those who choose not to play by the rules," Werfel says. "Those are the implications."
Write to advisor.editors@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 05, 2026 08:00 ET (13:00 GMT)
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