Just Taxes Blog by ITEP

The IRS Could Calculate Taxes for the Vast Majority of Taxpayers—But a Bipartisan Measure Would Ban It

The IRS Could Calculate Taxes for the Vast Majority of Taxpayers—But a Bipartisan Measure Would Ban It

April 12, 2019

Jessica Schieder
Jessica Schieder
Federal Tax Policy Fellow

Every year, in the lead up to Tax Day, American households engage in a puzzling dance with our nation’s revenue authorities. We pretend to have some confidence in our ability to calculate how much tax we owe, and the government pretends that it doesn’t mostly already know how much we made last year.

The currency of for-profit tax preparers, like TurboTax or H&R Block is the confusion caused by complicated tax forms, and taxpayers pay for this to the tune of billions of dollars every year.

Experts have for a long time agreed that IRS IT infrastructure and taxpayers’ customer experience should be improved. Unfortunately, cuts in IRS funding, a lack of IRS authority to broaden its range and quality of services, and constant meddling by the for-profit tax preparation industry have consistently stymied any significant progress.

A proposal re-introduced this week by Sen. Elizabeth Warren (D-MA), Sen. Jeanne Shaheen (D-NH), and Rep. Brad Sherman (D-CA), The Tax Filing Simplification Act of 2019, goes a long way toward making tax filing a much more straight-forward process by broadening the IRS’s mandate.

It would require a free, online tax preparation tool and filing software to be available to tax filers, allow filers to download third-party provided return information, and allow individuals with simple returns to let the IRS prepare their taxes for them. This third provision of the bill seeks to exploit the fact—that for roughly 90 percent of households, which do not itemize—the IRS essentially already knows how to fill out your tax forms. This bill would be a green light for eligible households to let the IRS fill out the paperwork, implementing so-called “return-free filling” and saving families and the IRS time.

To be sure, making filing taxes easier and free for the vast majority of Americans is the nightmare of for-profit tax preparers, like TurboTax and H&R Block, which rely on taxpayers’ stress and confusion for profit.  These entities—while advertising themselves as a trusted ally of the average tax filer—have nefariously sought to make claiming the Earned Income Tax Credit (EITC) more difficult, exploit low- and moderate-income taxpayers using refund anticipation loans (RALs), and nickel-and-dime the lowest-income filers with excessive filing fees.

Just this week, a bipartisan group of legislators—ranging from civil rights icon Rep. John Lewis (D-GA) to Rep. Mike Kelly (R-PA)—bowed to the wishes of the exploitative, for-profit tax industry by voting for the Taxpayer First Act, which all but ensures taxpayers’ concerns are put dead last during future filing seasons. It appears some members were wooed by the Act’s codification of existing practices that generally exempt low-income individuals from fees and payments associated with offer-in-compromise (OIC) agreements and an exclusion that would prevent low-income filers’ records from being referred to private debt collectors.

The two above-mentioned proposals run directly counter to each other—one seeks to reduce taxpayers’ reliance on for-profit entities during tax season, the other guarantees that taxpayers will remain reliant on these same commercial interests for many years to come. Policymakers need to recognize how grave a mistake it would be to allow tax preparers to hold low- and middle-income households hostage. These businesses’ interests will always lie in making the tax code more complicated, extracting ridiculous fees from filers, and exploiting well-meaning taxpayers’ uncertainties. Instead, consistent with Sen. Warren’s proposal, we should be loosening these companies’ grip on American families by empowering the IRS to best serve the American public.