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Press Release

FreedomWorks Joins Coalition Letter on Return Free

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