Investing.com -- A new U.S. House proposal could pose a significant competitive threat to  Intuit ’s (NASDAQ:INTU) TurboTax business, according to a research note from BNP Paribas (OTC:BNPQY) Exane. The legislation would terminate the IRS Direct File program but lay the groundwork for a broader free tax filing system that may reach up to 70% of U.S. taxpayers.

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BNP Paribas Exane analyst Stefan Slowinski said the bill reintroduces concerns about long-term pressure on Intuit’s high-margin tax software division. “We believe the stock’s risk/reward continues to skew negatively, especially given the potential risks to Intuit’s core DIY TurboTax business,” Slowinski wrote.

The bill calls for a task force to explore a free tax filing model within 90 days of passage. While details remain uncertain, policymakers could opt to partner with private firms like Intuit rather than launch a new government-run system, putting as much as 20% of Intuit’s operating profit at risk in future seasons.

Currently, only about 37% of TurboTax users qualify for free filing, well below the 70% threshold outlined in the proposed plan. If implemented broadly, a free filing option could reduce consumer willingness to pay for Intuit’s TurboTax services, particularly in its do-it-yourself (DIY) software segment, which accounts for a substantial share of profitability.

Slowinski, who maintains an Underperform rating and a $530 target price on the stock, noted that the bill could garner bipartisan support. “Providing free tax return will be popular with consumers, citizens, and voters,” he said.

While the removal of Direct File may initially appear favorable to Intuit, BNP said the establishment of a replacement, especially one enabled by public-private partnerships, could dramatically expand access and accelerate longer-term pricing pressures.

As the stock continues to trade near 40x forward earnings, BNP believes current valuations do not adequately reflect regulatory or competitive risks. High interest in simplified and free tax filing underscores rising scrutiny of business models built on exclusive control of taxpayer interfaces.

If the task force abandons the effort, however, Intuit could instead benefit by regaining users drawn away by the original Direct File. Still, the firm warns investors that clarity on the policy path may not emerge until later this year.

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