Senator Elizabeth Warren, D-Mass., has introduced legislation, co-sponsored by Sen. Bernie Sanders of Vermont, that would require the Internal Revenue Service to develop a free, online tax preparation and filing service that taxpayers could use to prepare and file their taxes directly with the federal government.
Elizabeth Warren
(Photo: Drew Angerer/
Bloomberg)
The Tax Filing Simplification Act of 2016 aims to simplify and decrease the costs of the tax filing process for millions of American taxpayers. This year, Warren’s office noted, taxpayers will spend an average of 13 hours preparing and filing their returns, and will pay $200 for tax preparation services, a cost equivalent to nearly 10 percent of the average federal tax refund.
The legislation that Warren and some of her colleagues introduced Wednesday would direct the IRS to develop a free, online tax-filing service that taxpayers could use if they like. The bill would also prohibit the IRS from entering into agreements, such as the Free File Alliance, that restrict its ability to provide free online tax preparation or filing services. The bill would give all taxpayers the right to download third-party-reported tax information that the IRS already has, and would provide those with simple tax situations with a return-free option.
In conjunction with the introduction of the legislation, Warren released a staff report that describes how the tax preparation industry has blocked the IRS for decades from implementing laws that would make tax preparation and filing easier for taxpayers. Corporate capture of the filing process means that taxpayers have to absorb billions of dollars in costs and share their personal information with third parties just to file their taxes.
“Congress should be making it easier for Americans to file their taxes each year, not bowing to the interests of the tax prep industry,” Warren said in a statement. “The Tax Filing Simplification Act is a commonsense bill that would help taxpayers all across this country file their taxes with less stress and fewer costs, and it would push the IRS to use the authority it already has to simplify Tax Day for all Americans.”
In addition to Sanders, other original cosponsors of the bill include Senators Sheldon Whitehouse, D-R.I., Tom Udall, D-N.M., Jeanne Shaheen, D-N.H., Al Franken, D-Minn., Tammy Baldwin, D-Wis., and Edward J. Markey, D-Mass.
“Tax Day has become an opportunity for corporations to profit off of confusion over our complicated tax code,” said Sanders, who is running for the Democratic presidential nomination. “That is wrong. The Tax Filing Simplification Act would end the absurdity of Americans having to pay private companies hundreds of dollars to pay their taxes. We must make tax filing as easy as possible, not direct profits to private companies at the expense of working families.”
The legislation has been endorsed by dozens of law professors and economists including Austan Goolsbee of the University of Chicago, Emmanuel Saez of the University of California – Berkeley, and Joe Bankman of Stanford University.
The report issued in conjunction with the legislation takes aim in particular at the Free File Alliance of tax software vendors who work in partnership with the IRS.
“Despite its legal obligations, the IRS has surrendered to industry pressure and other efforts to block access to free and accurate return-free tax filing,” said the report. “Instead of implementing the return-free filing requirements in the 1998 IRS Restructuring and Reform Act, the IRS has time and again acquiesced to industry demands that it avoid developing return-free filing options. The agency has repeatedly yielded to industry demands to administer the “Free File” Program—a public-private partnership between the IRS and the tax preparation industry that offers low-income taxpayers free, industry-prepared electronic tax preparation services. The tax preparation industry exerts powerful influence over the design and administration of this program; year after year, the IRS has signed Free File agreements with these tax preparation companies, in which the IRS pledges to “not compete…in providing free, online tax return preparation and filing services to taxpayers”— despite the fact that current law requires the Treasury to develop programs to do exactly that.
The report contends that the Free File program has failed and is currently used by only 3 percent of eligible filers with a confusing “maze of offerings” that can trick taxpayers into purchasing unnecessary products.
“Furthermore, the IRS has failed to implement commonsense tax simplification programs, like the Real Time Tax Initiative, instead bowing to industry complaints that such efforts would be precursors to return-free filing, which the industry opposes,” according to the report.
The Free File Alliance objected to the report and the legislation. “The Tax Filing Simplification Act is anything but simple,” said Free File Alliance executive director Tim Hugo in a statement. “Not only would the legislation create a tremendous and potentially harmful conflict of interest for the American people by enshrining roles of tax preparer, tax collector, tax auditor and tax enforcer together in one entity, the IRS, but the system’s very creation would also be a huge burden for taxpayers. The IRS has cut 13 percent of its full-time workforce since 2011, and government budgets are shrinking, not expanding. The proposal would make the essential tax administration work of the IRS impossible, while disadvantaging the taxpayer. The reality is that Americans already have free and effective options for tax preparation which cost the public, Treasury and taxpayers nothing. The Free File program, which is regulated by the IRS, has provided $1.4 billion in donated tax software services, serving almost 50 million American families. Responding to an IRS survey, 96 percent of users said they found Free File easy to use, while 98 percent said they would recommend the program to others. It is also important to recognize that while Free File was created to further drive the IRS e-filing initiative and reduce tax administration costs, it has also engaged the tax software industry in providing free and innovative preparation options, which multiply every year.”