Bills
| 3.23.22

Should the IRS Provide Taxpayers With a Pre-Filled Tax Return? (H.R. 2297)

Do you support or oppose this bill?

What is H.R. 2297?

(Updated September 1, 2020)

This bill — the Tax Filing Simplification Act of 2019 — would aim to simplify and decrease the costs of the tax filing process for millions of American taxpayers. It would require that a free, online tax preparation and filing toolbe made available to tax filers, permit filers to download third-party-provided return information, and allow individuals with simple returns to let the Internal Revenue Service (IRS) prepare their taxes for them.

Under this bill, the IRS would be required to provide establish and operate the following programs for free:

  • Online tax preparation and filing software;
  • A program for taxpayers to download third-party provided return information relating to individual income tax returns;
  • A program to permit individuals with simplified tax situations to elect to have the IRS prepare their returns; and
  • A program to provide technical assistance and federal tax return information for states that provide or seek to provide state-level tax preparation and filing software.

Argument in favor

Pre-filled returns for the 90% of taxpayers who don’t itemize their tax returns will save Americans time and money. By making it easier to file taxes, they'll also increase the tax filing rate and ensure more people get their returns. Since the current Free File program is used by only 3% of taxpayers, it’s clear that a better free alternative is needed.

Argument opposed

The IRS, in partnership with the major tax preparation companies, already has a Free File program that allows taxpayers making $62,000 or less a year to file their taxes for free. This bill would require the IRS to do more work and may make it necessary to increase the agency’s budget.

Impact

Taxpayers; free tax filing; tax preparation companies; the IRS; and the Free File Alliance.

Cost of H.R. 2297

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Rep. Brad Sherman (D-CA) reintroduced this bill from the 115th Congress to ease the tax filing process for millions of American taxpayers and reduce their tax filing costs:

“Under the Tax Filing Simplification Act, most Americans would receive a tax return already prepared by the IRS.  They could hit ‘submit’ and they’re done. Or they could make changes and then hit ‘submit.’ Or they could simply ignore the IRS pre-prepared return and submit their returns just as they do now.”

Senate sponsor Sen. Elizabeth Warren (D-MA) says:

"Taxpayers waste too many hours and hundreds of dollars on tax preparation each year, which disproportionately burdens low-income and minority taxpayers. This bill will require the IRS to offer easy, free, online tax-filing for all taxpayers. This is a simple idea with a long history of support from both Republicans and Democrats, and it's time to make it a reality."

In 2017, Sen. Warren explained how this would work and why it’d be better than the current Free File program:

“The IRS would simply enter the information they already have on file, send it to the taxpayer, and let the taxpayer know how much they owe or will be refunded. [Currently,] the tax prep companies make it almost impossible to figure out if you qualify for free filing. Each company has different criteria, and they all up-sell new products every click of the way through the return.”

Economic Security Project Action is among a number of organizations that supports this bill. Its director, Adam Ruben, says:

"Millions of Americans each year who are eligible for cash refunds like the Earned Income Tax Credit don't claim them -- either because tax filing is too complicated, or they don't know they're eligible. This creates a system where only the wealthiest Americans can afford to take advantage of the tax breaks and deductions available to them. Senator Warren's Tax Filing Simplification Act is a commonsense improvement that would make tax filing easier and more fair, and mean millions more hardworking Americans will get the refunds like the EITC they're entitled to."

Although this bill has been supported entirely by Democrats and Independents for the past two Congresses, the idea of return-free filing hasn’t always been a liberal issue. In an 1985 speech, President Ronald Reagan praised the idea. He said:

“We envision a system where more than half of us would not even have to fill out a return. We call it the return-free system, and it would be totally voluntary. If you decided to participate, you would automatically receive your refund or a letter explaining any additional tax you owe. Should you disagree with this figure, you would be free to fill out your taxes using the regular form. We believe most Americans would go from the long form or the short form to no form.”

After Reagan, President Barack Obama campaigned on a filing system he called “The Simple Return” in 2008. In a speech, he said, “There is no reason the IRS can’t send Americans pre-filled tax forms to verify.” In 2006, Obama’s senior economic advisor, Austan Goolsbee, had authored “The ‘Simple Return’: Reducing America’s Tax Burden Through Return-Free Filing,” in which he advocated making tax filing simpler by having the IRS use the information it already has to create a prepared return the taxpayer can approve or reject.

The major tax-preparation companies — including Intuit, H&R Block and Liberty Tax — are members of a consortium called the Free File Alliance, which seeks to preempt any IRS free online tax preparation programs with its own services for low-income taxpayers provided by the for-profit companies. In 2002, the Free File Alliance made a deal with the IRS, called “Free File,” to offer free filing for anyone making $62,000 or less in partnership with the IRS. In the same deal, the IRS agreed not to offer its own software.

Intuit, which owns TurboTax, and H&R Block have lobbied for years to stop the government from providing a prefilled filing for taxpayers. In 2016, Inuit spent over $2 million on lobbying, with most of its efforts focused on legislation that’d permanently bar the government from offering taxpayer prefilled returns; similarly, H&R Block spent $3 million on lobbying in 2016, with some of it also directed towards the same legislation. When Sen. Warren introduced this bill in 2017, the Free File Alliance warned in a press release that allowing the IRS to prep returns would create “a tremendous and potentially harmful conflict of interest for the American people by enshrining the roles of tax preparer, tax collector, tax auditor and tax enforcer in one entity.” In 2016, Tim Hugo, the Free File Alliance’s executive director, noted that Free File had facilitated 48 million returns over the past 13 years (equivalent to $1.4 billion worth of tax software). Hugo also called return-free filing “a recipe for a backdoor tax increase.”

In 2017, Gene King, a spokesman for H&R Block, also argued that receiving an IRS-prepared return would “intimidate” taxpayers into paying whatever the IRS says they owe and require a larger IRS budget to implement. He questioned, “With the government focused on maximizing revenues, can taxpayers really expect the IRS to scrutinize every return to ensure taxpayers are paying only what they owe? Doubtful.”

Anti-tax conservatives, led by Grover Norquist, also don’t want tax collection to be made more efficient through return-free filing. They fear that it’ll be easier for the government to raise tax rates if taxes feel effortless and people spend less time considering them.

This bill has eight Democratic House cosponsors in the 116th Congress. Its Senate companion bill, sponsored by Sen. Elizabeth Warren (D-MA), has 11 cosponsors, including 10 Democrats and one Independent.

Last Congress, this bill had eight Democratic House cosponsors and didn’t receive a committee vote. Its Senate version, sponsored by Sen. Warren, had 11 cosponsors (10 Democrats and one Independent) and didn’t see committee action. Prior to the 115th Congress, Sen. Warren introduced this bill in prior Congresses,where it failed to gain traction.

This bill is endorsed by the National Consumer Law Center (on behalf of its low-income clients), the Institute for Taxation and Economic Policy, Americans for Tax Fairness, Economic Security Project Action, the Hispanic Federation, and Americans for Financial Reform.

This bill’s sponsors claim that under it, most taxpayers will be able to complete their tax returns in under 10 minutes and at no cost.


Of Note: In the 2018 tax season, American taxpayers spent an average of 11 hours and around $200 preparing their tax returns (a cost equal to almost 10% of the average federal tax refund). The IRS’ current Free File program — which uses agency-vetted third-party software from tax-prep companies — has been criticized for being under-utilized (only about 3% of eligible taxpayer use it, even though the program claims to provide free tax preparation services to 70% of taxpayers) and serving as a vehicle for upselling taxpayers to other, paid products.

For the roughly 90% of households that don’t itemize their tax returns, the IRS essentially knows how to fill out their tax forms without their input. This bill would take advantage of this fact to allow those eligible households to let the IRS fill out their tax paperwork, implementing “return-free filing” and saving families and the IRS time.

Eight OECD countries, including Finland and Norway, fully prepare returns for the majority of their taxpayers. Consequently, in Estonia, it takes the average person five minutes to file taxes. Similarly, in Sweden, most taxpayers just get a document from the government with all relevant tax information already filled out; and some even get a text message with their prepared tax information, and their taxes are done if they simply respond “yes” to the text.


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / grejak)