Sen. Elizabeth Warren is leading other Democratic senators in reiterating their call for the IRS to establish its own free tax-filing services and depart from its present private partnership, whose services are only utilized by a small percentage of taxpayers.
Warren, a Massachusetts Democrat, introduced a bill that would require the IRS to develop its own free, online tool for preparing and completing tax returns and increase taxpayer access to personal tax information held by the organization.
A House version of the bill was introduced by California Democrats Brad Sherman and Katie Porter.
With effect for the tax year 2023, the proposal would order the IRS to develop software that would enable any taxpayer to prepare and file their individual income tax return.
As of the 2023 tax year, the agency would also have to give taxpayers with relatively simple returns — those who don’t itemize their deductions, don’t take any above-the-line deductions, or have income as a sole proprietor of a business, for example — the option of having Treasury prepare their tax returns.
The IRS would have to develop a procedure to allow people to safely download return information from third parties and IRS-held information about their specific tax liabilities.
By March 1, 2023, a mechanism enabling taxpayers who do not need to file tax returns to claim refundable tax credits must be in place, according to the proposed legislation.
With this clause, nonfilers who are eligible for other tax benefits, such as the earned income tax credit, which is available to low-wage workers, will be able to use a sign-up facility for the child tax credit.
The proposal also forbids the Treasury secretary from concluding any new contracts that would limit the federal government’s ability to offer services or software for preparing and filing taxes.
According to a fact sheet from the bill’s supporters, the IRS Free File program, which currently aspires to provide free tax preparation to 70% of taxpayers by working with commercial tax preparation companies, has issues.
The senators claimed that the program is underutilized, frequently tricks taxpayers into paying for services, and falls short of providing proper protection for taxpayer data. H&R Block and TurboTax, two significant online tax platforms, withdrew from the program over the past two years.
According to IRS data, the Free File program was used to submit just 2.8% of all individual tax returns filed in fiscal 2021.
Since the bill’s last submission in 2019, it has gained co-sponsors, and it now has the support of 22 Democratic senators.
Warren has attempted to connect the matter to the Democratic Party’s drive for a budget reconciliation plan. Sen. Joe Manchin III, D-W.Va., and Senate Majority Leader Charles E. Schumer, D-N.Y., are attempting to reach an agreement on a package that essentially includes provisions to reduce prescription medication costs, encourage the creation of clean energy, and raise taxes on the affluent and businesses.
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The most recent Senate version of the measure included around $80 billion over ten years for the IRS, mostly to strengthen its capacity to pursue unpaid taxes and increase federal revenue in the process. Additionally, it contained $15 million for the IRS to research whether it would be feasible to develop a free, direct internet tax return system.
Warren challenged Treasury Secretary Janet L. Yellen during her June appearance before the Finance Committee to guarantee that if Congress approves the $80 billion cash infusion, the IRS will go further and develop its own free filing system.
Yellen referred to more urgent matters, such as clearing the backlog of tax returns, but she agreed that the IRS will deal with the matter if it had “sufficient resources.”
