Sen. Elizabeth Warren Proposes Requiring That IRS Offer Free Tax Filing & Prep Services

Image courtesy of Adam Fagen

With the clock officially ticking down on the 2016 tax season, lawmakers are already looking for ways to simplify the process next year by introducing legislation that would, among other things, develop a free, online tax preparation and filing service that taxpayers can use to prepare and file their taxes directly with the federal government. 

The Tax Filing Simplification Act of 2016, introduced by Massachusetts Sen. Elizabeth Warren, would instruct the Internal Revenue Service to develop an online preparation service to simplify and decrease the costs of the tax filing process.

Under the bill, taxpayers would have the right to download third-party-reported tax information that the IRS already has, and would provide those with simple tax situations a return-free option.

The legislation was created following a staff report [PDF] released by Warren’s office that found for decades the tax preparation industry has blocked the IRS from implementing laws that would make tax preparation and filing easier for consumers.

One of the processes blocked by the preparation industry was the 1998 mandate to create a “return-free” filing system that would compute an individual’s tax liability by using information already reported to the IRS each year.

The system would have saved taxpayers time and money, the report states, and would have resulted in more accurate returns.

“The tax preparation industry has zealously fought efforts to make tax filing easier for Americans, and they have been joined by anti-tax organizations, despite the stated goals of these organizations to simplify taxes,” the report states. “The IRS has been required for almost 20 years to develop procedures to implement return-free filing, but has failed to do so.”

If the IRS were to offer these services, it could mean significant losses to tax prep companies like Intuit (TurboTax) and H&R Block. That’s why this industry has spent piles of cash lobbying Congress to prevent exactly what Sen. Warren is proposing.

In fact, since 1998, Intuit has spent over $24 million on federal lobbying efforts, the report states. Thirty-six of Intuit’s 41 lobbying disclosures related to taxes from 2015 show the company’s efforts to “support the IRS Free File Program,” while its 2008 to 2012 disclosures consistently “oppose IRS government tax preparation.”

Likewise, H&R Block has spent more than $16 million lobbying the federal government, primarily focusing on tax issues. The company’s lobbying disclosures from 2006 to 2015 show its interests in “issues impacting…tax preparers” and “matters relating to personal income taxation.” However, some of those efforts went toward supporting a bill that would prohibit the IRS from creating the return-free filing system.

As a result of these efforts, taxpayer will spend, on average, 13 hours preparing and filing their returns, and pay $200 for preparation service this year, according to the report.

The tax-prep lobby has previously gone so far as to have Intuit-funded legislators introduce a bill that would have permanently barred the IRS from offering a service that competes with the existing privately run tax-prep products.

“Congress should be making it easier for Americans to file their taxes each year, not bowing to the interests of the tax prep industry,” Sen. 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.”