Watchdog launches investigation into IRS creation


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A conservative watchdog group is launching an investigation into the tax authorities (IRS) for creating a government-run tax filing program that critics argue would give the agency too much power.

The American Accountability Foundation (AAF) is making public record requests, first obtained by Fox News Digital, seeking notices and other documents from the IRS and the Office of Management and Budget regarding the establishment of an IRS-administered electronic tax filing system , which is usually referred to as “direct file”.

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The Inflation Reduction Act, a giant Democratic-backed spending bill signed into law last year, included $15 million for the IRS to look into creating a free direct tax filing system. Specifically, the legislation requires a study by an independent third party examining the feasibility of the idea, as well as a report from the IRS to Congress assessing the study, the cost of such a system, and survey-based taxpayer opinions.

Commissioner Danny Werfel speaks after being sworn in on April 4, 2023 at the IRS headquarters in Washington, DC. (Ting Shen/Bloomberg via Getty Images)


IRS Commissioner Daniel Werfel told lawmakers several times over the past two months that no decision had been made on a direct file, adding that the agency would “consider” the matter, consult Congress and wait for the report to decide. determine how to proceed.

“No decision has been made to move forward with the direct file solution,” he testified before the Senate Finance Committee in April.

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Days later, Werfel echoed that sentiment to the House Ways and Means Committee: “I don’t yet know if the direct file solution is the right additional menu item to put in so that taxpayers who want to engage in that way can do it. What I’d like to do is get the report out, and then start a conversation with the right group of stakeholders and figure out what’s next.’

However, the IRS had quietly built a real prototype direct file before submitting the report to Congress, as the Washington Post first reported in May. The IRS released its final report a day after the Post’s disclosure. The IRS system will reportedly be available through a pilot program to a small group of taxpayers by January, when the 2024 filing season begins.

Critics objected to the IRS for having a prototype before the release of the third-party report and study.

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“This suggests a predetermined outcome and goes against previous commitments Commissioner Werfel has made to publicly consult Congress on a possible no-cost solution, and for the IRS not to act without explicit legal authorization,” Idaho Sen. Mike Crapo, the top Republican on the Senate Finance Committee, told the Post.

Rep. Jason Smith, R-Mo., chairman of the House Ways and Means Committee, expressed similar sentiments following the IRS’s announcement last month.

“Americans don’t want to give the IRS such sweeping scrutiny and authority, but the Biden administration refuses to listen,” Smith said in a statement. “The announcement of a pilot program raises serious questions about how long the Biden administration’s decision to move forward with such a program has been in the making, whether the agency intended to follow Congress’s direction to allow this investigation. in an independent and independent manner. impartial manner, and whether the IRS is acting outside the law by creating a program that Congress has not approved.”

When reached for comment on this story, the IRS told Fox News Digital that the prototype was built solely to help with survey data to gauge taxpayer opinion on a direct file system.

Representative Jason Smith questions Treasury Secretary Janet Yellen at a House Ways and Means Committee hearing on Capitol Hill on March 10, 2023. (Drew Angerer/Getty Images)


“The prototype was developed to augment survey data so that taxpayers had a tool to share their views on – it is not a fully featured direct file tool and no real tax information was used in usability testing sessions or for any other purpose,” said one office spokesperson.

AAF’s Freedom of Information Act requests are looking through various correspondence and calendars in an effort to find out exactly what goes on behind the scenes with direct file.

Proponents of a direct file system argue that it would be free, easy to use, and efficient by allowing taxpayers to file returns directly with the government.

Critics counter that such a system would centralize too much power in the hands of the IRS, not only as an auditor, but also as a tax preparer and filer, pointing to the notorious technical problems that plagued the government-run for people who wanted to sign up for ObamaCare.

“The IRS’s ‘direct file’ option is a recipe for disaster,” AAF President Tom Jones told Fox News Digital. “Imagine what will happen if the technology fails — and it will if the rollout takes any lead — and federal taxpayers are faced with a legion of 87,000 new IRS agents waiting to audit their tax returns. To add insult to injury, the Biden administration has decided to outsource this project to a bunch of former Obama administration staffers.”

The Inflation Reduction Act awarded the IRS $80 billion to hire tens of thousands of new employees over the next decade.

President Biden speaks at the White House during a celebration of the Inflation Reduction Act on September 13, 2022. (Nathan Posner/Anadolu Agency via Getty Images)


In February, the IRS announced it would contract the New America Foundation — a left-wing think tank funded by nonprofits founded by liberal billionaires Bill Gates, George Soros, Mike Bloomberg and Eric Schmidt — to study direct filings.

House Republicans were quick to note that New America employees — several of whom are alumni of the Obama administration and Hillary Clinton’s staff — wrote favorably in 2021 of Senator Elizabeth Warren’s Tax Simplification Act, which introduced a government-run filing system would set up with the tax authorities.

The Biden administration has also appointed Ariel Jurow-Kleiman, a tax attorney and professor, to work with New America. Jurow-Kleiman co-authored a paper earlier this year that said, “I speak directly on the issue of a government-run e-file program: The IRS should adopt the most comprehensive version of the program, one that the maximum amount of taxpayer.” information and requires the least amount of taxpayer input for any individual taxpayer.”

Smith proposed the decision to tap into New America and Jurow-Kleiman intended to “cook the books” by ensuring that the IRS’s final report would portray the direct file in a favorable light.

“The administration has singled out a think tank with ties to the liberal wing of the Democratic Party that has already advocated for this bureaucratic expansion,” Smith previously told Fox News Digital. “Can we really trust the IRS to file U.S. taxes for them in a fair and impartial manner, when it’s already piling the pile toward a predetermined conclusion to gain more power?”

Smith has also argued that, under direct file, Americans “would be powerless if the IRS fully controlled the tax filing process from start to finish.”

IRS documents (Luke Sharrett/Bloomberg via Getty Images)


Republicans and other critics have expressed concern that the IRS will ramp up audits, including targeting lower- and middle-income Americans, because of the additional resources granted by the Inflation Reduction Act. Both Werfel and Treasury Secretary Janet Yellen have said the government will not raise audit rates for small businesses and households earning less than $400,000 above historic levels.

Yellen reportedly directed the IRS to move forward with a pilot direct file system to test the program after reviewing the agency’s report.

“The U.S. Treasury Department’s approach is consistent with best practices for new product launches in both the government and private sectors, where the transition from research and development to customer centricity is done incrementally to allow for additional testing of hypotheses generated during research. and development phase,” Werfel told reporters on a phone call last month, adding that taxpayers will always have options for how they file their taxes and that the IRS cannot manage the tax system alone.

Direct filing would present a unique challenge for private companies in the tax preparation industry.

“Filing taxes is expensive and time-consuming for American taxpayers,” Laurel Blatchford, a Treasury Department official charged with overseeing IRA implementation, told reporters during the same call. “On average, individual taxpayers spend about eight hours and $140 each year preparing their taxes. Taxpayers with income from a business or those who work in the gig economy pay even more.”

“Dozens of other countries have offered free tax filing options to their citizens, and U.S. taxpayers who want to file their taxes online for free should have an accessible option,” she continued. “The IRS report released today found that the majority of taxpayers support the ability to file their taxes directly with the IRS for free.”

Treasury Secretary Janet Yellen on February 27, 2023. (Genya Savilov/AFP via Getty Images)


However, the findings of the public opinion of the The final report of the tax authorities were based in part on a study conducted late last year by the impartial MITER Corp. which showed that direct files were relatively unpopular among Americans compared to proprietary software or a system where the IRS automatically files returns for taxpayers.

The MITER study found that only 15% of Americans would use an IRS direct e-file system, even if it could prepare state returns and provide the same functionality as free commercial software. In that scenario, 48% preferred the current software they use and 37% would use a system where the IRS automatically filed individuals’ tax returns for them.

In another scenario that does not include state returns, only 12% of taxpayers would use a direct file, while 60% would opt for commercial software.


AAF’s filing requests include documents dating back to August 1, 2022, about two weeks before the Inflation Reduction Act was signed into law.

Aaron Kliegman is a political reporter for Fox News Digital.

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