Warren, Sanders sponsor bill going after TurboTax & complexity of tax filing, by @Gaius_Publius

As Tax Day Nears, Extensive Report Examines Industry Capture of the Filing Process, Efforts to Block IRS Reforms

Apr 13, 2016

Bill Text, Fact Sheet
Tax Report

Washington, DC - United States Senator Elizabeth Warren (D-Mass.) today introduced the Tax Filing Simplification Act of 2016 to simplify and decrease the costs of the tax filing process for millions of American taxpayers. This year, taxpayers will spend an average of 13 hours preparing and filing their returns, and will pay $200 for tax preparation services - a cost equal to almost 10 percent of the average federal tax refund.

The legislation introduced today would direct the Internal Revenue Service (IRS) to develop a free, online tax preparation and filing service that taxpayers can use to prepare and file their taxes directly with the federal government, if they choose to do so, and would prohibit the IRS from entering into agreements that restrict its ability to provide free online tax preparation or filing services. The Act 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 Tax Filing Simplification Act, Senator Warren released a staff report that describes how - for decades - the tax preparation industry has blocked the IRS 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.

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 Act was introduced with original cosponsors Senators Bernie Sanders (I-Vt.), 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.)

"Congress should be making it easier for Americans to file their taxes each year, not bowing to the interests of the tax prep industry," said Senator Warren. "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."

"Tax Day has become an opportunity for corporations to profit off of confusion over our complicated tax code. 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," Senator Sanders said.
"Families with simple returns should be able to prepare and file their taxes online without paying fees to private companies," said Whitehouse. "This bill will save those families money and time and protect their private information."

"I regularly hear from New Mexico taxpayers - especially those who are self-employed - who say that the overly complicated tax filing process costs them valuable time and hard-earned money," said Senator Udall. "The commonsense changes in this bill would make Tax Day easier on millions of dutiful, taxpaying Americans, cut down on fraud and save families money by enabling them to file taxes for free. I urge Congress to act quickly on this long-overdue reform."

"Every year, Americans spend far too much time and money filing their taxes," said Senator Franken. "This bill will save Americans money by simplifying an unnecessarily complex process. The IRS should be working to make this process as easy for taxpayers as possible."

"American taxpayers are forced spend too much time and money filing taxes when it doesn't have to be that way," said Senator Baldwin. "If Congress would simply act on commonsense reforms at the IRS, we can simplify tax filing and make it less expensive for taxpayers."

...this report finds that vehement and longstanding opposition by the tax preparation industry and anti-tax groups has prevented the IRS from meeting its statutory requirement to develop procedures for return-free filing and has denied American taxpayers the many benefits of this system. [emphasis mine]

In 1998, a Republican Congress passed — and Democratic President Bill Clinton signed — the IRS Restructuring and Reform Act, which required the Treasury Department to develop, by 2008, procedures for the implementation of a “return-free” filing system that would compute an individual’s tax liability by using information already reported to the IRS each year. Such a system would save taxpayers time and money, and would result in more accurate tax returns.3 For many taxpayers, it would take minutes instead of hours to complete their taxes.

But almost a decade after the law’s required 2008 implementation date, the Treasury Department has failed to fulfill its legal obligation to establish procedures for return-free filing. Sen. Warren requested that her staff determine why. This report finds that:

• 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. 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.4 The tax preparation industry-run Free File program has failed. It is currently used by only 3% of eligible filers and is described as a “maze of offerings” that can trick taxpayers into purchasing unnecessary products.5 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.

• The tax preparation industry has vehemently opposed return-free filing. Rather than sift through a complex tax code on their own, the majority of Americans hire tax professionals, or use tax preparation software, to prepare their returns. The tax-filing burden is an essential part of the tax preparation industry’s business model, and the industry sees return-free filing as a fundamental threat to its operations. As a result, the industry has devised numerous ways to oppose a return-free filing system, spending millions of dollars lobbying Congress against return-free filing and mounting fake “grassroots” campaigns against return-free filing.

• While some simplification approaches would be consistent with their goals, anti-tax groups have nevertheless also opposed return-free filing. Anti-tax groups frequently raise concerns about the complexity of the tax code and the substantial burdens imposed by the current tax filing process: the mission of Americans for Tax Reform, for example, includes creating “a system in which taxes are simpler,” while the National Taxpayers Union rails against the “over 6 billion hours each year for individuals and businesses to comply with the Code.”6 A voluntary return-free filing program would address these concerns, simplifying filing, strengthening taxpayers’ right to know the information the IRS had received on them from third parties, and substantially enhancing taxpayer freedom to choose how to file their taxes. But the same anti-tax groups that champion a simpler tax system have worked closely with the tax preparation industry to oppose free filing.

Return-free filing offers the chance to make tax filing for Americans significantly cheaper, faster and more accurate. But this report finds that vehement and longstanding opposition by the tax preparation industry and anti-tax groups has prevented the IRS from meeting its statutory requirement to develop procedures for return-free filing and has denied American taxpayers the many benefits of this system.