A coalition of more than two dozen conservative and free-market organizations sent a letter to Congress urging lawmakers to oppose the creation of a government-run tax prep service.
The letter also blasts the IRS for using taxpayer funds to contract the progressive-leaning New America Foundation to conduct a study examining the impact of a government-run “direct-file” tax preparation system, despite the organization’s extensive public advocacy in favor of such a tax prep system.
The letter warns that “the IRS’s selection of New America Foundation represents an obvious effort from the Biden Administration to select a politically allied group to conduct a study where the results are pre-baked and favorable to the cause of government-run tax preparation.”
Below is the full content of the letter and list of organizations signing:
March 22, 2023
Dear Members of Congress,
We the undersigned organizations write to urge you to oppose the creation of a government-run tax preparation service, sometimes referred to as a “direct file” tax return system.
Buried in the misnamed Inflation Reduction Act passed by Democrats last year is a provision that hands the Internal Revenue Service (IRS) $15 million in taxpayer funding to lay the groundwork for the creation of a government-run tax preparation system. Such a system would be an unprecedented expansion of the size and power of the IRS and should be opposed by Congress.
Government-run tax preparation would create a significant conflict of interest in which the IRS would be responsible for calculating a filer’s tax liability and for managing contested tax returns. This would create an incentive for the IRS to overcharge taxpayers or withhold information from filers to maximize revenue. This concern is only bolstered by the IRS receiving $80 billion in increased funding from the Inflation Reduction Act to ramp up audits of American taxpayers with a clear mandate to maximize the amount of tax revenue collected from filers.
Private tax preparation companies, in contrast, have a financial incentive to minimize the amount of taxes their clients owe, and are therefore more likely to provide taxpayers with impartial and accurate advice. Congress should resist any effort that would empower the IRS to simultaneously act as tax preparer, collector, and auditor.
The IRS’s conflict of interest is already playing out and on display in its use of taxpayer funds to conduct a study examining the impact of a “direct file” system. Despite the Inflation Reduction Act’s requirement for the IRS to seek the opinions of independent third parties, the IRS instead contracted the progressive-leaning New America Foundation to conduct a study.
The IRS disregarded its mandate for an impartial study, selecting New America Foundation to conduct the study despite the organization’s prior public advocacy supporting the creation of government-run tax preparation. The organization released an extensive report in March of 2021 that went so far as recommending a specific “portal” and roadmap for the IRS to follow to develop the tool needed for a government-run system – making New America Foundation a potential vendor or partner should the IRS develop a direct file system.
According to reporting, New America Foundation receives funding from “a litany of left-leaning philanthropic organizations, including the Bill and Melinda Gates Foundation, Rockefeller Foundation, Ford Foundation, Bloomberg Philanthropies, Melinda Gates’ Pivotal Ventures LLC and the Soros-backed Open Society Foundations.”
The IRS’s selection of New America Foundation represents an obvious effort from the Biden Administration to select a politically allied group to conduct a study where the results are pre-baked and favorable to the cause of government-run tax preparation.
In addition to this conflict of interest, government-run tax prep should be opposed by lawmakers for a host of policy reasons.
The IRS lacks the information it needs to prepare tax returns and would put tax credits disproportionately claimed by low-and-moderate income filers at risk. Even the Progressive Policy Institute (PPI) stressed this concern in a report warning that a “return-free” system could create a “tax trap” jeopardizing Americans qualifying for the earned income tax credit (EITC).
PPI went on to state that “the IRS does not have the necessary information in its databases to accurately determine a low-income taxpayer’s eligibility for EITC and/or correctly calculate the amount of credit due to the taxpayer—indeed, far from it.”
Additionally, a recent study from PricewaterhouseCoopers found that compliance burdens on individual tax filers would likely increase under a government-run tax preparation system.
The report warned that “because a significant portion of the population has self-employment income and a greater number use above-the line deductions, the pool of taxpayers eligible to use a return-free system may be limited without a substantial expansion of information reporting. Such an expansion would include significant new costs, not only in terms of administrative burden on taxpayers, tax administrators, and third parties, but also burdens with respect to taxpayer privacy.”
The IRS cannot be trusted with such an expansion of taxpayer information reporting when it fails to protect the information it already collects. A Treasury Inspector General for Tax Administration (TIGTA) report from last May found the IRS management purposefully decided to “destroy an estimated 30 million paper-filed information return documents in March 2021.”
This was followed by the IRS leaking stolen private tax returns to a progressive media organization ProPublica that then published them. A 2016 TIGTA report concluded that the IRS lost 1,000 laptops containing sensitive taxpayer data that contract employees used. In 2015, hackers stole the personal data of 330,000 taxpayers using a tool on the IRS website to steal tax forms.
The IRS should not take on new responsibilities, including running tax preparation for the country, while it fails to complete the basic responsibilities Congress has already assigned to it.
President, Americans for Tax Reform
Paul S. Teller
Executive Director, Advancing American Freedom
President, American Commitment
President and CEO, American Consumer Institute
President, Americans for a Balanced Budget
President, Center for a Free Economy
Executive Director, Center for Innovation and Free Enterprise
President, Citizen Outreach
President, Club for Growth
Senior Vice President and General Counsel, Conservative Political Action Coalition (CPAC)
President, Consumer Action for a Strong Economy
Executive Director, Digital Liberty
President, Frontiers of Freedom
President, Heartland Institute
Executive Director, Heritage Action
President, Independent Women’s Forum
Heather R. Higgins
CEO, Independent Women’s Voice
President and CEO, Job Creators Network
President, Less Government
Fmr. Speaker, MO House
Chair, MO Center-Right Coalition
Executive Director, Ohioans for Tax Reform
Executive Director, Open Competition Center
Executive Director, Property Rights Alliance
Rio Grande Foundation
Executive Director, Shareholder Advocacy Forum
Saulius “Saul” Anuzis
President, 60 Plus Association
James L. Martin
Founder/Chairman, 60 Plus Association
President & CEO, Small Business & Entrepreneurship Council
President, Taxpayers Protection Alliance
President, Utah Taxpayers Association