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Press Release

    FreedomWorks Joins Coalition Letter on Return Free

    11/10/2005

    Download the .pdf of the letter here

    October 28, 2005

    The Honorable Joseph Knollenberg
    2349 Rayburn House Office Building
    Washington DC 20515

    Dear Representative Knollenberg:

    The undersigned organizations wish to convey our strong support for the Ensign-Allen-DeMint-
    Bond provision in the FY06 Departments of Transportation, Treasury, and Housing and Urban
    Development, the Judiciary, District of Columbia, and Independent Agencies Appropriations
    Act. We strongly urge your active support of this provision in conference committee.

    This provision would prohibit the Internal Revenue Service (IRS) from providing free electronic
    individual tax preparation outside of the Free File program, an agreement by which the electronic
    tax filing industry provides free filing services to needy taxpayers. This agreement has served
    two simultaneous purposes by meeting the needs of low income taxpayers while protecting them
    from the inherent conflict of interest that would result from the tax collector and enforcer taking
    on the role of tax preparer.

    This provision is essential to prevent the IRS from implementing a “Return-Free” tax filing
    scheme, by which the IRS would automatically prepare the income tax returns of those taxpayers
    with the simplest returns. Having already received the W-2 forms from the taxpayer’s employer
    – which are now used to audit and verify returns – the agency uses government computers to
    calculate what it believes the taxpayer’s payment or refund should be.

    There are several major reasons why this “taxpayer service” is flawed, dangerous to taxpayers,
    and should not be a component of federal tax reform.

    • Return Free creates a conflict of interest by making the tax collector the tax
    preparer. Return Free would make the same agency that collects taxes, writes tax
    regulations, collects revenues, performs audits, and enforces compliance to now also
    become the tax preparer. As a result, the tax collector’s interest in maximizing revenue
    completely overrides the citizen’s interest in minimizing his or her tax liability. Return
    Free cuts out the critical participatory role of the individual in the management of his or
    her own finances, including minimizing the individual’s tax burden to the fullest extent of
    the law. It is not inconceivable that a government agency may choose to overlook many
    of the deductions and credits to which taxpayers are entitled either through bureaucratic
    error or in the interest of maximizing revenue.

    • Return Free takes a dangerous step away from voluntary compliance. Involvement
    in preparing and submitting one’s tax return is one way in which the public has
    awareness of, and accountability for, its own government. Willing citizen participation in
    the tax process is something absent from other economies where government undertakes
    this role.

    • This program likely will result in more errors as intimidated taxpayers either
    underpay or overpay. For many taxpayers targeted by Return Free, getting an official
    “bill” from the Internal Revenue Service can be extremely intimidating, particularly for
    seniors, low-income and non-English speaking citizens. In some cases, taxpayers who
    might have additional deductions not reflected on their Return Free tax statement may
    feel compelled to pay the official government determination without question. In other
    cases, taxpayers who earned non-wage income may accept the government-prepared bill
    out of fear of challenging it, and mistakenly underpay and open themselves up to later
    investigation for tax evasion.

    • The individual taxpayer is personally liable for mistakes, not the government. The
    Return Free system saddles the taxpayer with responsibility for the accuracy of the
    government-prepared return, much like the current IRS 800 number hotlines may not be
    relied upon for accurate information and advice. In contrast, if a taxpayer receives
    assistance in the preparation of his or her taxes – from a private sector tax preparer or tax
    software – it is commonly understood that the commercial service provider shares
    responsibility for the return’s accuracy. A Return Free system could expose taxpayers to
    unknowing violations of the law because they believed they were in compliance.

    • Return Free is not a solution for non-compliance. Return Free systems are entirely
    dependent on reported income as the data source for the automatic preparation of tax
    returns – W-2 and 1099 forms which are already reported directly to the government.
    Where there is taxable income that is truly unreported in the economy today – such as
    from self-employment, tips, or under-the-table employment or transactions – a Return
    Free system would have no new sources of information, and therefore non-compliance
    would continue.

    • Even with Return Free, taxpayers must still take the time to prepare their taxes.
    While Return Free will undoubtedly be advertised as a convenient timesaver, taxpayers
    will still have to independently determine and prepare their own taxes to verify that the
    Return Free bill is correct and avoid being held liable for filing a false, inaccurate or
    incomplete tax return. Because the sole responsibility and liability for accuracy and
    completeness is on the individual, Return Free does not result in a reduction of burden or
    the substitution of government compliance work for that expected of the citizen.

    The Ensign-Allen-DeMint-Bond provision in the Senate version of the FY06 TTHUD
    appropriations bill is essential to prevent government from once again attempting to compete
    with the private sector, and to ensure that the IRS does not implement a Return Free tax
    preparation scheme. Therefore we strongly support this provision and urge you to help ensure
    that this language is accepted during the TTHUD conference negotiations.

    Sincerely,

    Grover Norquist David Keene
    Americans for Tax Reform American Conservative Union
    Paul Gessing Geoffrey Segal
    National Taxpayers Union Reason Foundation
    Karen Kerrigan Daniel Clifton
    Small Business & Entrepreneurship Council American Shareholders Association
    David Keating Thomas Schatz
    Club for Growth Council for Citizens Against Government Waste
    Michelle Korsmo Jim Martin
    Americans for Prosperity 60 Plus
    Tammy Lyles Matt Kibbe
    Free the Eagle Freedom Works
    Fred Smith George Landrith
    Competitive Enterprise Institute Frontiers of Freedom
    Cc: House Republican Conferees, FY06 TTHUD Appropriations