Senator Warren wants to expand IRS powers beyond the Cut Inflation Act to prepare tax returns

In the tax and expense bill that passed the Senate over the weekend, there was a provision for $15 million to be studied allowing the IRS to prepare the taxes.

The provision comes after Sen. Elizabeth Warren, D-Mass., and other Democrats pushed legislation to add tax reporting to the agency’s jurisdiction.

The Cut Inflation Act, which passed the House on Friday after clearing the Senate — the vote was 50-50 with Vice President Kamala Harris breaking a tie — affects nearly $80 billion at the tax agency. This would allow the IRS to hire its desired 87,000 officers over the next decade to increase tax enforcement.

A small portion of the funding includes $15 million dedicated to funding a task force to study the cost and feasibility of creating a free direct electronic file program, which has been a controversial idea.

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Warren did not plan to wait for a task force study and has already introduced legislation to develop a free online tax preparation and filing service that allows all taxpayers to prepare and file their taxes. directly with the federal government rather than through private tax preparers.

Sen. Elizabeth Warren, D-Mass., speaks during a press conference on expanding deportation protections in the upcoming coronavirus bill at the United States Capitol on July 22, 2020. (Drew Angerer/Getty Images/Getty Images)

Warren’s proposal would move faster to allow filers with straightforward tax situations to choose a “no-return option” that provides a pre-prepared tax return with an income tax payable or refund amount already calculated. Proponents also say it would reduce tax evasion by providing third-party income information to the IRS earlier in tax season.

Warren’s bill has 22 Senate Democratic co-sponsors. Representatives Brad Sherman and Katie Porter, both Democrats from California, are the main sponsors of the House version.

“The average American spends 13 hours and $240 a year filing taxes – that’s too much time and too much money,” Warren said in July, before Sen. Joe Manchin, DW.Va., n announces its agreement to the reconciliation plan.

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“Congress should pass my Tax Filing Simplification Act, and the IRS itself can and should pass my plan to simplify the tax filing process for millions of Americans and reduce their costs,” Warren said.

However, the concept of “filing without return” or allowing the IRS to control the filing of taxes for most low-income people has critics on both sides of the political spectrum.

On the one hand, it presents a clear conflict of interest, said Grover Norquist, president of the American Conservatives for Tax Reform.

“The IRS is the prosecutor and the judge in this system. All inducements are false,” Norquist told FOX Business.

Grover Norquist

Grover Norquist, founder and president of Americans for Tax Reform (Nicholas Kamm/AFP via Getty Images/Getty Images)

On the left, a 2020 report by the Progressive Policy Institute argued that this system could prevent some low earners from getting the earned income tax credit.

“The IRS does not have the necessary information in its databases to accurately determine a low-income taxpayer’s eligibility for the EITC and/or correctly calculate the amount of credit owed to the taxpayer – far from it” , says the Progressive Policy Institute report. . “The EITC is based on a stew of residence, family relationships and income limits with complex tiebreaker rules.”

Additionally, the IRS has demonstrated many problems managing the liabilities it already has, Norquist argues.

“This is an agency that really needs reform, and now is not the time to give it more responsibility,” Norquist said. “They would say they just need more money. More money until there is reform.”

Norquist added that this system did not work when attempted in Britain.

The Treasury Inspector General for Tax Administration, the IRS’ internal watchdog, reported in 2016 that IRS staff had lost 1,000 laptops containing sensitive taxpayer information. In 2015, hackers had access to the data of approximately 330,000 taxpayers.

In June, the Taxpayer Advocate Service, a watchdog agency within the IRS, discovered that the agency had more than 21.3 million unprocessed taxpayer returns.

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The legislation aims to expand a program that was first put in place for stimulus checks to respond to COVID-19 in 2020. The checks were sent to anyone who filed a tax return. For those not required to file a tax return, the IRS issued a rule to establish a “simplified return” for those who earned too little to file a return.

A household could provide basic information such as names, and the IRS would do the rest. In 2021, the IRS used it to get Child Tax Credit information.

The bill would make this available to all filers.

“American taxpayers are spending too much time and money preparing their tax returns. It doesn’t have to be that way,” said Sherman, one of the House’s top co-sponsors, who is also a certified public accountant and co-chair of the House Bipartisan CPA Caucus.

“The Tax Filing Simplification Act represents a sensible solution to a problem that has plagued taxpayers for far too long: simplifying the process of filing taxes with less cost and hassle.”

Internal Revenue Service

IRS Headquarters in Washington, D.C. (Al Drago/Bloomberg via Getty Images/Getty Images)

The IRS also has a free file system that contracts out private tax preparers to provide free services. However, a Government Accountability Office report in April determined that only about 3% of Americans who file tax returns use the system, while 70% of filers are eligible.

Warren blamed tax preparation time and costs on big corporations for “sabotaging the Free File program in order to reap big profits.”

Proponents of the legislation say that if enacted it would make it easier for those eligible for the earned income tax credit and child tax credit and also make tax preparation less expensive.

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However, a PriceWaterhouseCoopers study from December 2021 determined that compliance costs for individual payers under the current rules have fallen by 40% since 2005.

“Because a significant portion of the population has self-employment income and more use over-the-line deductions, the pool of taxpayers eligible to use a no-return system may be limited without a substantial expansion of disclosure,” said the PriceWaterhouseCoopers study.

“Such an expansion would result in significant new costs, not only in terms of administrative burden for taxpayers, tax administrators and third parties, but also in terms of taxpayer privacy.”

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