Tax Analysts Blog

Warren Is Right About Tax Returns

Posted on Apr 19, 2016

Sen. Elizabeth Warren, D-Mass., might be a polarizing figure, but she is correct about at least one issue: pre-filled tax returns. Warren introduced legislation April 14 that would require the IRS to fill out tax returns for taxpayers with relatively simple tax situations. This would, of course, deal a major blow to the so-called Free File Alliance, which is primarily led by Intuit (the maker of TurboTax), H&R Block, and Jackson Hewitt.

The Tax Filing Simplification Act of 2016 would prohibit the IRS from entering into agreements that limit its ability to provide online filing, force it to allow taxpayers to file directly with the federal government, and allow some taxpayers to choose a return-free option that would provide a pre-filled return. The act points out that the average taxpayer spends 13 hours and $200 filing a tax return. In a release accompanying the bill, Warren decried the outsized influence of return preparer giants on the tax return filing process.

The Free File Alliance, of course, is opposed to almost every part of the bill. It has spent years lobbying federal and state governments to limit taxpayers' ability to file online, unless they use a member of the alliance. It has misled taxpayers about what services it provides for "free." And it has done its best to make sure that the IRS and state revenue agencies never provide anything resembling a pre-filled return, even though tax administrators already have access to almost all the information required by most taxpayers.

Voters and taxpayers probably aren't aware of just how much influence the Free File Alliance has had on tax day. The alliance successfully killed Virginia's online preparation portal. It has persuaded governments to limit the availability of fillable PDFs, making it harder to prepare returns by hand. Simply put, the tax return industry, now worth $10 billion a year, is one of the most effective lobbying powers -- on Capitol Hill, inside the executive branch, and in state capitals.

What Warren is proposing is hardly radical. Many European countries provide pre-filled returns. And California has been experimenting with something similar for years. Adding information that tax administrators already possess would relieve most taxpayers of the burden of doing almost anything on their returns (unless they chose to edit their submission or provide more information). It is remarkable how much time low- and middle-income taxpayers spend giving the IRS data that it already has.

The U.S. tax system is very complex. But its reputation on the individual side is not entirely deserved. Taxpayers who do not itemize are more intimidated by the return filing process than they should be. The Free File Alliance has contributed to this problem, encouraging everyone to believe that they need the assistance of a return preparer. Warren's bill is a first, necessary step toward breaking the iron grip these companies have on our relationship with the IRS. It would simplify the return process, allow people to keep more of their refunds, and make tax day a lot less stressful. And that's something all lawmakers and tax officials should support.

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