Conservative coalition takes aim at Biden’s IRS-run tax preparation service

A coalition of conservative groups led by Americans for Tax Reform are calling on lawmakers to block the creation of a government-run tax preparation service or a “direct file” tax return system, a largely overlooked reform included last year in President Biden’s landmark Inflation Reduction Act.  

The program is the brainchild of Sen. Elizabeth Warren (D-Mass.), who in 2021 reintroduced it to simplify the tax filing process for millions of Americans in the hopes of saving average Americans hours and hundreds of dollars usually spent on filing taxes.  

But conservative critics led by Americans for Tax Reform President Grover Norquist say the government shouldn’t be helping Americans figure out how much they owe in taxes because the Internal Revenue Service has a vested interest in collecting as much tax revenue as possible.  

“Such a system would be an unprecedented expansion of the size and power of the IRS and should be opposed by Congress,” Americans for Tax Reform and allied conservative groups wrote in a March 22 letter to members of 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,” the groups wrote. “This would create an incentive for the IRS to overcharge taxpayers or withhold information from filers to maximize revenue.” 

The letter has more than 30 signatories, including Norquist; Paul Teller, the executive director of Advancing American Freedom; Phil Kerpen, the president of American Commitment; Stephen Pociask, the president of the American Consumer Institute; Ryan Ellis, the president of Center for a Free Economy; and David McIntosh, the president of Club for Growth.  

The groups say their 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.” 

The brewing battle pits Norquist, who rose to prominence by promoting the Taxpayer Protection Pledge, which a majority of Republican senators and House members have endorsed, against Warren, who has led the push among Democrats to raise taxes on the wealthy. 

“People who want to block Free File are doing so to try to make paying taxes as cumbersome and painful as possible for everyday taxpayers. That’s just playing politics at its ugliest level,” Warren said in response to the letter.  

“Nations around the world do versions of free file in order to make it easy for people to support their government. There’s no reason the United States should not be doing that as well.” 

Warren introduced her Tax Filing Simplification Act in response to what she saw as the failures of the earlier “Free File” program, which the IRS outsourced to the tax preparation industry and she argued at the time underserved the public.  

She pointed out last year that Intuit, a longtime member of the Free File alliance, had been sued for “scamming taxpayers into paying for filing service that should have been free,” according to a statement from her office released in July.  

“The average American spends 13 hours and $240 every year to file their taxes — that’s too much time and too much money. This is the result of corporations like Intuit sabotaging the Free File program to rake in large profits,” Warren said last year.  

But Norquist and other critics of the reform argue that private tax preparation companies are better suited to help Americans filed their taxes because they “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.” 

They say the IRS is already showing its hand by tapping the progressive-leaning New America Foundation to conduct a study of the impact of a direct filing system.  

“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,” the groups wrote.  

They argued that the IRS lacks the information it needs to prepare tax returns and would put tax credits often claimed by lower-income tax filers at risk, citing a Progressive Policy Institute report that warned a “return-free” system could fail to properly identify Americans who qualify for the earned income tax credit.  

“The IRS just doesn’t have the information required to be able to file an [earned income tax credit] for people. A significant percentage of people, I think it drops by 10 or 15 percent, wouldn’t be claiming the EITC as currently do. That’s when the tax trap comes in,” said Mike Palicz, the director of tax policy at Americans for Tax Reform.  

Americans for Tax Reform and its allies argue that another study from PricewaterhouseCoopers found that a government-run tax preparation service would increase the compliance burdens on individual tax filers. 

They cited PricewaterhouseCoopers’s finding that “the pool of taxpayers eligible to use a return-free system may be limited without a substantial expansion of information reporting.”