June 07, 2022

At Hearing, Secretary Yellen Agrees with Senator Warren on Need to Create a Free Tax Filing System That Actually Works for Americans

Senator Warren’s Tax Filing Simplification Act would direct the IRS to develop its own free online tax preparation and filing service that would lower taxpayer costs - and the IRS already has the authority to do so

Video Exchange (Youtube)

Washington, D.C. – At a hearing of the United States Senate Finance Committee, U.S. Senator Elizabeth Warren (D-Mass.) emphasized the importance of investing in the IRS and tax filing simplification during her exchange with U.S. Treasury Secretary Janet Yellen. Senator Warren pointed to the failure of the Free File program, which is used by only 4% of taxpayers instead of the 70% it was intended to serve, thanks to companies like Intuit deliberately sabotaging the program and steering people to paid products. The Senator also made a case for urgent alternatives such as the Tax Filing Simplification Act that she will soon reintroduce, which would direct the IRS to develop its own free online tax preparation and filing service that would lower taxpayer costs and decrease the burden on the IRS. 

In response to Senator Warren’s question about the Secretary’s commitment to building a free tax filing system, Secretary Yellen responded that “it’s definitely a priority. It’s definitely something we should do and when the IRS is adequately resourced, it’s something that will happen.”

Transcript: The President’s Fiscal Year 2023 Budget
United States Senate Finance Committee
Tuesday, June 7, 2022 

Senator Elizabeth Warren: Today’s hearing focuses on the Treasury Department’s budget, and I want to talk about money for the IRS.

Thanks to a one-two punch from Republican budget cuts and lobbying from corporations and rich people who don’t want to be audited, the IRS today is stuck with 1970s computers and staffing levels, unable to do its job and take on wealthy tax cheats.

That underfunding also causes honest, hardworking Americans a lot of grief. According to the IRS, the average American spends 13 hours and $240 every year to file their taxes—13 hours/$240.  And sure, some people have complicated taxes that take time.   

But for about maybe half of Americans, taxes could be as easy as looking at a form the IRS already has filled out showing your W-2 and 1099 income, and then using the standard deduction and common tax credits to calculate how much you owe—or how big your refund will be.  If you don’t agree, check “no” and fill out your own form.  If you do agree, check “yes” and you are done. Easy peasy.

But the IRS doesn’t have that kind of easy peasy program. Instead, years ago the IRS cut a deal to send taxpayers to companies like Intuit and H&R Block to figure out what they owe. And in return, these companies were supposed to make tax filing free for 70% of American taxpayers through the “Free File” program. Secretary Yellen, what percentage of taxpayers actually use Free File right now?

Secretary Yellen: I believe that last year, about 4%

Senator Warren: About 4%?

Secretary Yellen: Four.

Senator Warren: That’s right. So it’s supposed to be 70% but it turns out it was 4% And you know that is not an accident. These companies deliberately sabotaged the Free File program and steered people to products they could charge for.  

Now companies like Intuit used misleading advertising and hid free products from Google search results – all so taxpayers had to spend more money to figure out how much they owe. The Federal Trade Commission has now sued Intuit over its bogus advertising of “free” tax filing software. And last month, state attorneys general extracted a $141 million settlement from Intuit for these scams.

Now, these swindles are just one reason why the GAO recently recommended that the IRS develop its own alternative to Free File, stating quote “IRS faces mounting risks by continuing to rely on the tax prep industry to provide free tax filing services,” end quote.

So, Secretary Yellen, it sounds like Free File has worked out great for corporations like Intuit, which raked in billions of dollars. But do you agree with GAO that the current system isn’t working for American taxpayers and that it’s time for the IRS to develop a real free filing program?  Or, let me ask this another way if we can get you the resources, will you commit to developing a free file program that really works for American taxpayers?

Secretary Yellen: So look, I absolutely agree with the comments you made about a free file. It hasn’t worked. We need to develop a new system. There’s no reason in the world that a modern economy shouldn't have a system that makes it easy for such a  large group of taxpayers to file their returns. Beyond that, I would also that it’s important that households be able to access the benefits that Congress often wants to provide like the earned income tax credit, the child tax credit when that was available, the economic impacts payments, and for individuals who don’t have to file income tax returns, this could be extremely difficult.

[cross talk]

Senator Warren: So I’m loving everything that you are saying, but I’m still listening to the part that says, if we can get you the resources, would you commit that the IRS will build its own free file program and make this available to Americans across the country?

Secretary Yellen: We’re certainly looking into it, but I want to make a point which is that the IRS is under siege. It is suffering from huge under-investment, it has massive problems that it’s dealing with. Right now, our number one priority is dealing with the backlog, a huge backlog of tax returns. The IRS right now doesn’t have the authority to hire the people it needs to deal with the backlog.

Senator Warren: Madam Secretary, look, I’m not somebody who is attacking the IRS. I’m trying to get you the resources that the IRS needs so it can go after wealthy tax cheats. But what I’d like to know is if we’re going to fight for the resources to get them over to you, and if the resources are available, would you commit to build the free file program?

Secretary Yellen: It’s definitely a priority. It’s definitely something we should do and when the IRS is adequately resourced, it’s something that will happen. 

Senator Warren: I think it’s something that we need to do. I have a bill, the Tax Filing Simplification Act. I'm going to reintroduce it, that will require you to do this, but I just want to make clear, you could do this. If we get you the money, I’d really like to see this happen, the Treasury has the authority now and needs to use it.