‘Direct file’ is a waste of time and money. Private companies and nonprofit organizations do just fine.
By Jason Altmire · May 31, 2023 5:53 pm ET
I have long supported efforts to ensure the Internal Revenue Service has the tools necessary to perform its two essential functions: responsible tax collection and enforcement. Now that Congress has finally done so in the Inflation Reduction Act, the IRS is seeking to expand its remit to include tax preparation. This is a mistake.
Former Commissioner Charles Rettig estimated that America’s tax gap—the amount the U.S. loses annually in unpaid taxes—had grown to an astonishing $1 trillion in 2021. A previous IRS estimate found that $441 billion in taxes had gone unpaid in the three years between 2011 and 2013. The Inflation Reduction Act’s cash infusion was designed to address this uptick in tax losses.
The IRS should be devoting its new resources to rebuilding its capacity to close the tax gap. Instead, the unpopular agency appears to be diverting its attention to creating an IRS-run electronic tax-filing system, which the agency argues will improve taxpayers’ overall experience. It’s doing so despite the proven ability of private firms and nonprofits to perform this service, and despite the lack of public support for the IRS assuming this role.
In the Inflation Reduction Act, Congress gave the IRS $15 million to explore consumer attitudes toward an agency direct-file system. An “independent third party” was to report on “the overall feasibility, approach, schedule, cost, organization design, and Internal Revenue Service capacity to deliver such a direct e-file tax return system.”
When the MITRE Corp., which operates the Treasury Department’s federally funded research-and-development center, studied the issue in 2022, it found little public appetite for such a system unless the IRS could also prepare state returns and more-complicated federal ones.
Yet this May the IRS released a new study it had commissioned from New America, an organization that has long supported the creation of an IRS direct-file system. Not surprisingly, the study concluded that “a potential Direct File system might create opportunities to ease the burden of tax filing for Americans.”
The House Ways and Means Committee and the IRS have had a long track record of collaborating to keep the agency aware of the American people’s concerns. This collaboration has inspired such measures as the electronic-returns system, midyear tax-refund programs, increased taxpayer rights and accountability measures. The IRS must continue to collaborate effectively with lawmakers to find the best way forward.
If Congress wants to help low- and moderate-income tax filers prepare their taxes, it should reallocate resources for the Volunteer Income Tax Assistance Program while supporting other nonprofit tax preparers. It shouldn’t allow the IRS to take on this redundant task that could distract it from its essential function of maximizing revenue. This is especially true given that the proposed new system would still require private and nonprofit systems to assist with filing state returns.
Focusing on the long-neglected collections and enforcement process should be the priority for the IRS, not entering into the tax-preparation business, which is already functioning well.
Mr. Altmire, a Democrat, served as a U.S. representative from Pennsylvania, 2007-13.