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Warren Announces Tax Filing Simplification Bill

APR. 12, 2017

Warren Announces Tax Filing Simplification Bill

DATED APR. 12, 2017
DOCUMENT ATTRIBUTES
  • Authors
    Warren, Sen. Elizabeth
    Shaheen, Sen. Jeanne
    Baldwin, Sen. Tammy
    Sanders, Sen. Bernie
    Franken, Sen. Al
    Udall, Sen. Tom
    Whitehouse, Sen. Sheldon
    Markey, Sen. Edward J.
    Leahy, Sen. Patrick J.
    Hassan, Sen. Maggie
    Duckworth, Sen. Tammy
  • Institutional Authors
    United States Senate
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2017-49652
  • Tax Analysts Electronic Citation
    2017 TNT 70-11

As Tax Day Approaches, Senators Will Introduce Bill to Simplify Tax Filing

APR 12, 2017

Washington, D.C. — United States Senator Elizabeth Warren (D-Mass.), along with ten other senators, today announced plans to reintroduce the Tax Filing Simplification Act of 2017 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 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.

Originally introduced in the 114th Congress, The Tax Filing Simplification Act has been endorsed by over 40 law professors and economists, and is endorsed by the National Consumer Law Center on behalf of its low-income clients, Americans for Financial Reform, the Institute for Taxation and Economic Policy, Americans for Tax Fairness, and the Hispanic Federation. The bill will be introduced when Congress resumes its 115th session, with original cosponsors Senators Jeanne Shaheen (D-N.H.), Tammy Baldwin (D-Wis.), Bernie Sanders (I-Vt.), Al Franken (D-Minn.), Tom Udall (D-N.M.), Sheldon Whitehouse (D-R.I.), and Edward J. Markey (D-Mass.), Patrick Leahy (D-Vt.), Tammy Duckworth (D-Ill.), and Maggie Hassan (D-N.H.).

"The tax preparation industry wants to keep Americans locked into a difficult and expensive tax filing process — that's how they turn big profits," said Senator Elizabeth Warren. "Some tax prep companies even resell taxpayer information to third parties or use tax filings to push new financial products. I am reintroducing the Tax Filing Simplification Act to stand up to these companies and give all taxpayers the option of free, simple tax filing."

"Each year, Americans spend far too much time and money navigating a needlessly complex process to file federal taxes," Senator Jeanne Shaheen said. "The Tax Filing Simplification Act of 2017 is a commonsense solution to make Tax Day easier, saving taxpayers valuable time and dollars."

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

"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 Bernie Sanders said.

"Every year, Minnesotans spend hours of their time and hundreds of their hard-earned dollars preparing their taxes," said Senator Al Franken. "Our bill will simplify the unnecessarily complex process Americans go through to file taxes, help protect sensitive personal information, and allow families in our state and across the country keep more money in their pocketbooks. The IRS should be working to make the filing process as easy as possible for taxpayers, and that's what this bill does."

"Tax Day should be as painless as possible for taxpayers," said Senator Tom Udall. "But I regularly hear from New Mexicans who tell me that the unnecessarily complicated tax filing process is costing them valuable time and hard-earned money. This long-overdue legislation will simplify tax filing for millions of Americans, protect individuals' private information, and save families money by enabling them to file their taxes for free. There's simply no good reason for Congress to delay this commonsense reform."

"This bill would require the IRS to build a better, simpler tax prep system — one that saves Rhode Islanders time and money while protecting their personal information," said Senator Sheldon Whitehouse.

"Taxes don't have to live up to their name and be so taxing for already busy and cash-strapped Americans," Senator Edward J. Markey said. "We need to simplify tax filing so that American households are spending their time and money on their families, not forms."

"Anything that can be done on behalf of taxpayers to simplify the tax code or to make the process easier is not only worth doing, but it needs to be a high priority. The tax code has been cross-stitched into such a complicated pattern that many taxpayers want and need assistance," said Senator Patrick Leahy. The Tax Filing Simplification Act is a ready and useful tool, and the IRS should be supporting it. A free online tax return preparation and filing service can give Americans a more stress-free and cost-efficient tax season. The third-party system in place today is not fair overall, and it needlessly keeps taxpayers in the dark about ways to make filing easier, and that's why I continue to support this practical legislation."

"Too many hardworking Americans are forced to spend needless time and money providing the IRS with information it already has," Senator Tammy Duckworth said. "This bill simplifies the tax-filing process for millions of Americans, and that's just common-sense."

"Filing taxes should be an easy process, but instead it's frustrating and confusing for too many Americans. It's long past time for Congress to come together to pass reforms at the IRS to simplify the tax preparation and filing process," Senator Maggie Hassan said. "By directing the IRS to develop a free, online tax preparation and filing service, the Tax Filing Simplification Act is a commonsense measure to help make filing taxes easier and more affordable for countless Americans."

The text of the bill is available here, and a fact sheet is available here.


The Tax Filing Simplification Act of 2017

The Problem: This tax season, American taxpayers will spend an average of 13 hours preparing their tax returns and will pay about $200 for tax preparation services — a cost equal to almost 10 percent of the average federal tax refund.1

In 1998, a Republican Congress passed — and President Clinton signed — an IRS reform bill mandating that the IRS develop procedures to implement a “return-free” tax system to dramatically simplify the filing process for individuals with simple tax situations.2 Yet these procedures remain undeveloped nearly a decade after the law’s 2008 implementation deadline. Instead, the IRS has turned over control of the tax filing process to private companies.

The IRS’s Free File program — a partnership between the IRS and private tax software companies — claims to provide free tax preparation services to 70 percent of taxpayers. In reality, only 3 percent of eligible taxpayers use Free File. Each software company is allowed to set up its own eligibility criteria, creating a “maze of offerings” that confuses taxpayers into purchasing unnecessary products.3 Taxpayers wishing to e-file their taxes have no choice but to share sensitive financial information with a private third party — even though a recent audit found that nearly half of Free File companies fail to adequately protect taxpayer data from cybercriminals.4

The National Taxpayer Advocate has consistently called for dismantling Free File.5 Instead, the IRS has repeatedly signed binding Free File agreements with the tax preparation industry, pledging that the federal government will “not enter the tax preparation software and e-filing services marketplace.” These agreements block the IRS from offering a free portal that would allow taxpayers to choose to file directly with the federal government.6

The Tax Filing Simplification Act of 2017

The Tax Filing Simplification Act of 2017 makes several commonsense changes to simplify the tax filing process for millions of American taxpayers and lower their costs. The Act:

  • Prohibits the IRS from entering into agreements that restrict its ability to provide free online tax preparation or filing services.

  • Directs the IRS to develop a free, online tax preparation and filing service that would allow all taxpayers to prepare and file their taxes directly with the federal government instead of being forced to share private information with third parties.

  • Enhances taxpayer data access by allowing all taxpayers to download third-party-provided tax information that the IRS already has into a software program of their choice.

  • Allows eligible taxpayers with simple tax situations to choose a new return-free option, which provides a pre-prepared tax return with income tax liability or refund amount already calculated.

  • Mandates that these data and filing options be made available through a secure online function and requires any participating individual to verify his or her identity before accessing tax data.

  • Reduces tax fraud by getting third-party income information to the IRS earlier in the tax season, allowing the agency to cross-check this information before issuing refunds.

  • This approach to tax filing has been praised in the media and endorsed by tax scholars and a bipartisan set of policymakers.7

FOOTNOTES

1Internal Revenue Service, “Estimates of Taxpayer Burden” (2015) (online at https://www.irs.gov/instructions/i1040a/ar03.html); According to the IRS, the average federal tax refund for the 2016 filing season is $2,866. IRS, “Filing Season Statistics for Week Ending March 25, 2016” (online at https://www.irs.gov/uac/Newsroom/Filing-Season-Statistics-for-Week-Ending-March-25-2016). The $200 the average American spends on tax preparation services represents 7% of the average refund.

2Sec. 2004 of P.L. 105-206 (105th Congress) (online at http://www.gpo.gov/fdsys/pkg/PLAW-105publ206/html/PLAW-105publ206.htm). JCT’s analysis of the 1998 IRS Restructuring and Reform Act states that Section 2004 was adopted because “Congress believed that it could benefit taxpayers to be relieved, to the extent feasible, from the burden of determining tax liability and filing returns. [. . .] The provision requires the Secretary or his delegate to study the feasibility of, and develop procedures for, the implementation of a return-free tax system for appropriate individuals for taxable years beginning after 2007." JCS-6-98, p. 54-55.

3Laura Saunders, “Why ‘Free File’ for Taxes Isn’t So Popular: Here’s How to Navigate the Maze of Offerings and Avoid Charges,” Wall Street Journal (January 30, 2014) (online at http://www.wsj.com/articles/why-free-file-for-taxes-isnt-so-popular-1422633546). Hearing on Tax Return Preparation Options for Taxpayers: Committee on Finance, United States Senate, 109th Congress (2006) (statement of Nina E. Olson, National Taxpayer Advocate) (online at https://www.irs.gov/pub/tas/ntatestimonysfc_tax_return_preparation_process040406.pdf).

4Laura Saunders, “Six of 13 IRS-Approved Tax Preparers Fail Cybersecurity Test,” Wall Street Journal (February 26, 2016) (online at http://www.wsj.com/articles/six-of-13-irs-approved-online-tax-prep-services-fail-cybersecurity-test-1456333409).

5Hearing on Tax Return Preparation Options for Taxpayers: Committee on Finance, United States Senate, 109th Congress (2006) (statement of Nina E. Olson, National Taxpayer Advocate) (online at https://www.irs.gov/pub/tas/ntatestimonysfc_tax_return_preparation_process040406.pdf).

6Seventh Memorandum of Understanding on Service Standards and Disputes Between the Internal Revenue Service and Free File, Incorporated (March 6, 2015) (online at https://www.irs.gov/pub/irs-utl/seventh_ff_mou_2015.pdf).

7Farhad Manjoo, “Would You Let the IRS Prepare Your Taxes?” New York Times (April 15, 2015) (online at http://www.nytimes.com/2015/04/16/technology/personaltech/turbotax-or-irs-as-tax-preparer-intuit-has-a-favorite.html?_r=1). Dylan Matthews, “Why I’m Boycotting TurboTax This Year,” Vox (March 29, 2016) (online at http://www.vox.com/2016/3/29/11320386/turbotax-boycott-lobbying). Derek Thompson, “The 10-Second Tax Return,” The Atlantic (March 30, 2016) (online at http://www.theatlantic.com/business/archive/2016/03/the-10-second-tax-return/475899/). Liz Day, “How the Maker of TurboTax Fought Free, Simple Tax Filing,” ProPublica (March 26, 2013) (online at https://www.propublica.org/article/how-the-maker-of-turbotax-fought-free-simple-tax-filing). Academic support includes Joseph Bankman (Stanford), “Using Technology to Simplify Individual Tax Filing,” 61 Nat'l Tax J. 773 (2008) (online at http://taxprof.typepad.com/taxprof_blog/2009/04/baknman-.html). and Dennis Ventry (UC Davis) “Intuit’s Nine Lies Kill State E-Filing Programs and Keep ‘Free’ File Alive,” 57 STATE TAX NOTES 555 (2010) (online at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1668912). In May 1985, President Reagan championed a plan under which Americans would “not even have to fill out a return.” Under Reagan’s proposal, Americans would “automatically receive your refund or a letter explaining any additional tax you owe.” President Ronald Reagan, “Address to the Nation on Tax Reform,” speech at the White House, May 29, 1985 (online at http://www.presidency.ucsb.edu/ws/?pid=38697). A year later, President Reagan signed the bipartisan Tax Reform Act of 1986 into law, including a provision requiring the IRS to examine the possibility and practicality of implementing return-free filing. Sec. 1582 of P.L. 99-514 (99th Congress).

END FOOTNOTES

DOCUMENT ATTRIBUTES
  • Authors
    Warren, Sen. Elizabeth
    Shaheen, Sen. Jeanne
    Baldwin, Sen. Tammy
    Sanders, Sen. Bernie
    Franken, Sen. Al
    Udall, Sen. Tom
    Whitehouse, Sen. Sheldon
    Markey, Sen. Edward J.
    Leahy, Sen. Patrick J.
    Hassan, Sen. Maggie
    Duckworth, Sen. Tammy
  • Institutional Authors
    United States Senate
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2017-49652
  • Tax Analysts Electronic Citation
    2017 TNT 70-11
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