Did you have to file for an extension with the IRS? You might have used an online application provided by tax software companies, which a pair of House lawmakers want to make a permanent tool for lower-income families who want to file their taxes online.
“You can see where the IRS already has more than it can deal with, so the idea of having an officially sanctioned private sector initiative is incredibly helpful at avoiding some of the pressure at the Internal Revenue Service,” Illinois Rep. Peter Roskam, who filed the legislation alongside Ron Kind, D-Wis., told the Washington Examiner.
It is a surprisingly controversial bill. Liberals regard it as a gift to tax software companies such as TurboTax, because it bars the IRS from developing its own software. Republicans such as Roskam maintain that it helps solidify a Free File program that works well.
“It’s a public-private partnership, and it’s designed to help modest and low-income taxpayers. It’s designed to assist them and expedite what can otherwise be a complicated and intimidating process,” Roskam said. “It has been in the law for a number of years, but it’s not a permanent program, so it’s always on the verge of expiration.”
Sen. Elizabeth Warren, D-Mass., disagrees. “The tax preparation industry-run Free File program has failed,” a recently released Warren staff report says. “It is currently used by only 3 percent of eligible filers and is described as a ‘maze of offerings’ that can trick taxpayers into purchasing unnecessary products.”
Instead, her report touts “return-free filing,” which allows the IRS to prepare tax returns for lower-income people, which tend to be simpler, and send those completed forms for the taxpayer to approve. “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,” Warren’s report says.
That said, IRS officials have expressed doubts about the agency’s ability to run a program that would be easy enough for taxpayers to use without creating a risk of hacking — a problem that already plagues the IRS.
“As we try to protect the security of the taxpayer, we should set very high standards for that verification, because we can’t have one leak,” IRS taxpayer advocate Nina Olson told lawmakers at an April 15 House hearing.
“That would be horrible, and the impact on compliance would be huge,” she continued. “But if we set it high, we will have people drop out. The IRS right now is testing a version of the online account with IRS senior management and non-bargaining unit employees, so these are people who are fairly sophisticated financially. Fifty percent of those volunteers could not get through the online account the first time around.”
Roskam said he favors the Free File program over the return-free filing as a matter of principle and practicality.
“What some people would like the IRS to do is fill out returns for people that would be presented as a done deal,” he said. “That’s an expanded role of the IRS. And what we’re trying to do is say, ‘No, let’s not go that route, let’s use the private sector technology that’s proven and available.’ They’re willing to offer it, so it’s more expeditious, it costs less money and it doesn’t involve more responsibility for the IRS.”
