April 12, 2019

Ahead of Tax Day, Senators Warren and Duckworth Release New GAO Report, Call on the IRS to Improve the Tax Refund Process

GAO report finds that tax-time financial products place financial burdens on lower-wealth populations; companies fail to provide clear and timely information on fees; and that IRS needs to improve data quality

Washington, DC - United States Senators Elizabeth Warren (D-Mass.) and Tammy Duckworth (D-Ill.) today sent a letter to the Internal Revenue Service (IRS) in response to Government Accountability Office (GAO) findings that show low-income and some minority taxpayers are more likely to use tax-time financial products. GAO indicated that these taxpayers are more reliant on tax-time financial products in part because they are more likely to need quick access to cash to meet their financial obligations. The senators have asked the IRS for more information about obstacles to disbursing refunds more quickly, which would allow these families to get access to critical funds without using these sometimes-costly products, and how the IRS can better regulate tax preparers.

"The findings of the GAO report are alarming, showing that low-income taxpayers -- those with the greatest need for additional funds -- are forced to buy expensive tax-time products because they need to pay bills due before refunds arrive," the senators wrote. "As the distributor of tax refunds, the IRS plays a role in perpetuating this problem."

In April 2017, Senator Warren asked the GAO in an oversight letter to conduct a review of the tax-time financial products most commonly used by taxpayers, as well as the transparency of and fees charged for these financial products. The newly-released GAO report found that:

  • Low-income and some minority taxpayers are more likely than other taxpayers to pay for tax-time financial products, placing additional financial burdens on lower-wealth populations who tend to live paycheck-to-paycheck;

  • Tax preparers surveyed by GAO failed to give consumers clear and timely information on costs and fees for these products, increasing the likelihood of consumer harm;

  • Banks and tax preparers began offering a new fee-based loan product in 2018, raising questions for lawmakers and regulators; and

  • The IRS needs to improve its data collection and reporting methods for tax-time financial products. In response to the GAO investigation, the IRS has indicated it will make changes to ensure the accuracy of its data.
Today, Senators Warren and Duckworth, along with their colleagues, Senators Jeanne Shaheen (D-N.H.), Sheldon Whitehouse (D-R.I.), Tammy Baldwin (D-Wis.), Bernie Sanders (I-Vt.), Tom Udall (D-N.M.), Edward J. Markey (D-Mass.), Maggie Hassan (D-N.H.), Jeff Merkley (D-Ore.), Cory Booker (D-N.J.), and Richard Blumenthal (D-Conn.) reintroduced the Tax Filing Simplification Act. Along with lowering costs and eliminating red tape for all taxpayers, return-free filing and other improvements in the Tax Filing Simplification Act would ensure that more eligible people -- including millions of low-income Americans -- receive important tax refunds, like the Earned Income Tax Credit.