As anticipated, Sen. Elizabeth Warren (D-Mass.) has introduced S. 4508, the Tax Filing Simplification Act of 2022 with 22 Democrats as co-sponsors, while Reps. Brad Sherman (D-Calif.) and Katie Porter (D-Calif.) introduced the House companion bill with eight Democrats.  This legislation would vastly expand the size and scope of the IRS’s power and would make tax season an even more difficult and stressful time for taxpayers.  Individual taxpayers should use information that only they know to file their taxes and the IRS should never have the power to file a tax return on their behalf.  It would make tax filing anything but simple.

Sen. Warren’s proposal is commonly known as “return free filing.”  This proposal would give the IRS the authority to pre-determine a taxpayer’s income and tax liability, complete the tax paperwork, and then send the taxpayer either a tax bill or refund based on the limited information provided on W-2s and 1099s.  All other information, like whether a child was born, someone got married, lost a job, retired, made charitable contributions, bought a house, paid property taxes, made changes to their retirement funds, or died is information that only the taxpayer knows and would not be included in the IRS’s tax assessment.

Sen. Warren claims that taxpayers spend more than 13 hours preparing their taxes and spend an average of $240 for tax preparation services.  Considering the complexity of the tax code, 13 hours and $240 over the course of a year is a de minimis amount of time and money and certainly does not justify letting the IRS take over that process.  In 2001, the IRS, after failed attempts by the agency to develop software that would allow taxpayers to file their taxes directly with the agency, created the Free File program, using a memorandum of understanding with private companies that agree to assist qualified taxpayers complete and file their returns free of charge.  At that time, up to 70 percent of taxpayers were eligible to file their taxes through this system. 

The Free File program has helped lower costs for eligible taxpayers and has made it easier to receive critical tax credits like the Earned Income Tax Credit.  Under the Tax Filing Simplification Act, the control over how to file taxes and determine refund or balance due in taxes would be shifted away from individuals, who know the most about their specific tax situation, to the IRS, which would rely on incomplete tax information based on the prior year’s return and receipt of W-2s and 1099s.

The IRS is ill-equipped to handle this new responsibility of filling out tax information for taxpayers.  An April 11, 2022, Government Accountability Office (GAO) report found that the IRS has about 10.5 million returns that were not processed for the 2020 tax year and the 2021 tax filing season will only make the backlog worse.  The return free filing proposal would lead to an influx of appeals and litigation that would cause this backlog to grow even larger.  GAO discussed the current Free File program in a separate report issued on April 28, 2022, where the agency’s response indicated it did not believe that a free public tax filing system would be a significant improvement for taxpayers over the existing Free File program, looking instead to continue “to collaborate with the FFI to identify and explore ways to better help low-income and moderate-income taxpayers.  The IRS is also looking at opportunities to promote the Free File Program and improve the overall taxpayer experience.”

The IRS also has an extremely outdated information technology (IT) and security system and has repeatedly failed to improve its IT and security systems dating back to the mid-1990s.  A November 4, 2021, GAO report showed that its most recent efforts to modernize also came up short.  The IRS is already failing to complete its basic mission of processing tax returns and issuing refunds.  The agency should not be promoted to the position of tax preparer and processor, in other words, judge, jury, and executioner. 

Preparing and filing taxes is already difficult and stressful enough for taxpayers.  The current Free File program helps taxpayers by connecting them with tax preparation professionals who complete their returns for free.  It also allows the taxpayer to use the information that only they know when filing their taxes.  The IRS has been continually plagued by weak data security and IT systems and is still facing a massive backlog of tax returns that are delaying refunds for the 2021 filing season.  Taxpayers know their individual circumstances and information and should always be in charge of filling out and filing their own tax returns.  Sen. Warren’s bill should go into the circular file.