Kaine & Colleagues Urge IRS to Simplify Tax Filing Process and Expand Access to Free Filing Options
WASHINGTON, D.C. – Today, U.S. Senator Tim Kaine joined U.S. Senators Tom Carper (D-DE) and Elizabeth Warren (D-MA) and his colleagues in sending a letter urging the Internal Revenue Service (IRS) to simplify the tax filing process and expand access to free e-filing options. The Inflation Reduction Act, which Kaine voted to pass last year, included funding to improve customer service at the IRS and modernize IRS systems to process tax returns quickly, get rebates to taxpayers faster, and address challenges Americans have when filing taxes. It also included a provision that required the IRS to study free online filing options, and the IRS is expected to finalize a report with recommendations to Congress by May. The letter urges a free filing option to be rolled out as quickly as possible if feasible.
“A key objective of the IRS should be to improve the taxpayer experience and make the process of filing income taxes simpler and more efficient. Better, more accessible e-filing tools can improve taxpayer compliance, minimize unintentional errors, and help taxpayers claim refunds quickly. As you know, the recent investments in the IRS under the Inflation Reduction Act present a unique opportunity to show how the agency can work better for the American people, and we strongly urge you to prioritize expanded access to simple, free e-filing options as part of this effort,” the senators wrote in a letter to IRS Commissioner Daniel Werfel.
They continued, “We are laser focused on finding ways to reduce barriers that taxpayers face when filing returns, including those among us who are members of the Senate Committee on Finance. While the IRS has previously had limited success in addressing these challenges due to lack of resources, the investments in the agency included in the Inflation Reduction Act (IRA) – including dedicated funding to develop a roadmap for greater e-filing options – make it possible to reverse course and significantly improve the taxpayer experience.”
As a member of the Senate Budget Committee, Kaine has pushed to modernize the IRS and improve customer service. Following investments made in the Inflation Reduction Act, average phone wait times at the IRS fell to four minutes in the 2022 filing season compared to 27 minutes in the 2021 filing season. In July 2022, Kaine joined his colleagues in introducing legislation to simplify the tax filing process for Americans and ensure Americans have access to a free online filing service. In March 2022, after hearing from Virginians who were still waiting for returns from the 2021 tax filing season, Kaine urged the IRS to come up with a plan to address the processing delays. In January 2022, Kaine joined a bipartisan, bicameral group of lawmakers in urging the Treasury Department and IRS to provide penalty relief for taxpayers and help reduce processing backlogs at the IRS.
In addition to Kaine, Carper, and Warren, the letter was signed by U.S. Senators Tammy Baldwin (D-WI), Michael Bennet (D-CO), Richard Blumenthal (D-CT), Cory Booker (D-NJ), Sherrod Brown (D-OH), Ben Cardin (D-MD), Bob Casey (D-PA), Chris Coons (D-DE), Tammy Duckworth (D-IL), Dianne Feinstein (D-CA), John Fetterman (D-PA), Maggie Hassan (D-NH), John Hickenlooper (D-CO), Mazie K. Hirono (D-HI), Angus I. King (I-ME), Amy Klobuchar (D-MN), Edward J. Markey (D-MA), Jeff Merkley (D-OR), Patty Murray (D-WA), Alex Padilla (D-CA), Jack Reed (D-RI), Bernie Sanders (I-VT), Brian Schatz (D-HI), Jeanne Shaheen (D-NH), Tina Smith (D-MN), Peter Welch (D-VT), Sheldon Whitehouse (D-RI), and Ron Wyden (D-OR).
Full text of the letter is available here and below.
Dear Commissioner Werfel:
As you implement the strategic operating plan to revitalize the Internal Revenue Service (IRS) and finalize a report to Congress on direct e-filing, we write to urge you to take meaningful steps to simplify the tax filing process and expand access to free e-filing options. A key objective of the IRS should be to improve the taxpayer experience and make the process of filing income taxes simpler and more efficient. Better, more accessible e-filing tools can improve taxpayer compliance, minimize unintentional errors, and help taxpayers claim refunds quickly. As you know, the recent investments in the IRS under the Inflation Reduction Act present a unique opportunity to show how the agency can work better for the American people, and we strongly urge you to prioritize expanded access to simple, free e-filing options as part of this effort.
Americans spend an average of $250 and 13 hours filing their taxes. Previous efforts by an underfunded IRS to improve and simplify the tax filing process and promote e-filing have produced mixed results. In particular, the IRS has partnered with private-sector tax preparation companies to create the Free File Program (“Free File”), intended to simplify the tax preparation process and provide lower-income taxpayers the opportunity to file their returns for free, while encouraging the growth of e-filing. However, the usage rate of Free File is unacceptably low: while 70 percent of taxpayers qualify for Free File, only 2 percent used the program in the 2022 tax year, according to the National Taxpayer Advocate.
The vast majority of taxpayers who are eligible to utilize the program instead file tax returns using other, often costlier, options – or do not file returns at all. Despite Free File’s two decades of operation, millions of taxpayers annually still miss out on critical tax benefits like the Earned Income Tax Credit and Child Tax Credit because they do not file returns. This low utilization rate is deeply concerning, and suggests a lack of transparency and clear communication from tax preparation companies that participate in the program. Further, the current memorandum of understanding (“MOU”) that governs the Free File program does not reflect federal digital service guidelines because it lacks accessibility requirements for mobile devices, taxpayers with disabilities, and foreign languages. The GAO concluded that the “IRS is not managing the potential risks of relying on the Free File program as the way it helps taxpayers file for free online.”
These challenges indicate that the IRS can, and should, do more to expand access to free, simplified filing options. As part of its examination of the Free File program, the GAO has recommended that the IRS develop additional options for taxpayers to access free online filing services. Similarly, the National Taxpayer Advocate has called on the IRS to offer a proprietary e-file system for taxpayers. Analysts from the Treasury Department, Federal Reserve, and Dartmouth also found that a government-run simplified filing tool taking advantage of the IRS’s own data about taxpayers’ circumstances could help tens of millions of Americans, including 12 million non-filers who missed out on $8.5 billion in refunds in 2019. Access to free, simple e-filing can help lower-income taxpayers claim important tax benefits, minimize filing errors, and improve the fairness of our tax system, while also saving the IRS money and improving processing times.
We are laser focused on finding ways to reduce barriers that taxpayers face when filing returns, including those among us who are members of the Senate Committee on Finance. While the IRS has previously had limited success in addressing these challenges due to lack of resources, the investments in the agency included in the Inflation Reduction Act (IRA) – including dedicated funding to develop a roadmap for greater e-filing options – make it possible to reverse course and significantly improve the taxpayer experience. The recently released IRS strategic operating plan highlighted the forthcoming direct e-file report, noting that “many other tax authorities have rolled out the ability to file taxes directly for free as part of their digital transformations.” The Treasury Department also commented upon the release of the IRS operating plan that “a viable Direct File option would ease the burden on many taxpayers who would otherwise pay to file their taxes via third party tax preparation services.” This follows an Executive Order from President Biden that instructed Treasury Secretary Janet Yellen to consider “expanded electronic filing options,” and testimony from Secretary Yellen before the Senate Finance Committee last year prior to the passage of the IRA that building a free direct filing program is “definitely a priority” and “when the IRS is adequately resourced, it’s something that will happen.”
Ultimately, the fairness and fiscal stability of our nation relies on an equitable tax system, and this moment presents a unique opportunity to deliver on this goal. By addressing the challenges that have plagued the Free File program and expanding the ability for taxpayers to access low-cost e-filing tools, we can reduce the tax filing burden on American families, cut costs and improve the efficiency of the IRS, and ultimately help restore confidence in the integrity of our tax system. We look forward to your report on direct e-filing in May. If the report concludes that such a system is feasible, we urge you to roll it out as quickly as possible.