House GOP Questions IRS on Study of Program That Would Make Agency Tax Preparer, Auditor

The Internal Revenue Service Building in Washington, D.C., on May 22, 2023. (Madalina Vasiliu/The Epoch Times)

IRS officials picked a left-wing think tank to conduct a $15 million “independent review” of a proposal long supported by the same foundation to empower federal officials to prepare Americans’ tax returns, according to House Ways and Means Committee Chairman Jason Smith (R-Mo.).

The think tank in question is New America, a Washington-based nonprofit foundation with deep ties to Democrat officials, appointees, and advocates.

“The characterization of New America as a strictly non-partisan, non-profit is surprising since the organization is known to be a left-leaning think tank. Specifically, some of the non-profit’s top officials include alumni from the Obama Administration ... and other top officials of the organization are tied to left-leaning mainstream and openly left-wing media outlets,” Smith said in a March 6 letter to Acting IRS Commissioner Douglas O'Donnell.

Rep. David Schweikert (R-Ariz.) co-signed the letter.

Smith and Schweikert told O'Donnell that they want copies of all IRS documents generated during the selection process that resulted in New America getting the nod to do the review. The requested documents haven’t been provided to the committee.

The proposal on the table is to establish the IRS Direct File program, under which taxpayers would have their annual income tax returns prepared by the agency using a new government software program to be developed. The $15 million funding for the review was authorized in an obscure provision of last year’s Inflation Reduction Act.

Even before New America was selected to conduct the review, the IRS had established a pilot program to begin testing the idea of turning federal officials into tax preparers, in addition to tax collectors and enforcers.

An IRS spokesman didn’t respond to a request by The Epoch Times for comment.

President Joe Biden’s administration and the Democratic majorities that controlled the 117th Congress approved $80 billion in funding that would allow the addition of 87,000 new IRS agents to its payroll, many of whom could be assigned to tax preparation if the Direct File initiative continues and expands from a pilot project.

Smith has no doubt that the project will be expanded as fast as Democrats can do it.

“From the start, the Biden Administration cooked the books to get exactly the outcome it wanted. The IRS chose a left-wing think tank and professor to run the study, both of whom are already on the record supporting the IRS becoming America’s tax preparer, filer, and auditor,” Smith said in a May 16 statement.

“IRS control of tax preparation is the latest step in Democrats’ ongoing efforts to supercharge the agency to go after working-class families, after giving the agency $80 billion to increase audits on taxpayers making less than $75,000. Americans will be powerless when the IRS completely controls the tax filing process from start to finish,” he said.

Smith is particularly upset that IRS officials initiated the pilot program without prior congressional authorization.

“Americans don’t want to give the IRS such sweeping control and authority, yet the Biden Administration refuses to listen,” he said in the statement.

“The announcement of a pilot program raises serious questions about how long the Biden Administration’s decision to move forward on such a program has been in the works, whether the agency had any intention of following Congress’ direction that this study be conducted in an independent and impartial way, and whether the IRS is acting outside the law in establishing a program that Congress has not authorized.”

If a truly independent review had actually been sought, New America was an odd choice, he said, given its lengthy record of advocating on behalf of expanding the IRS to be tax preparer, auditor, and collector.

In a March 2021 analysis, for example, New America argued that “the IRS would calculate taxpayers’ refund based on existing wage data, and then offer a simple and free tool for taxpayers to make corrections, provide additional information, review calculations, and finally file taxes. Such a system is commonplace in many countries, including Spain, Chile, Sweden, Estonia, and Iceland, and a proposal to create it has been repeatedly introduced in Congress by Sen. Elizabeth Warren (D-Mass.) and other Senate Democrats.“

But experts within and without the federal government wonder if the IRS could handle such a huge expansion of its powers and duties, if only because the tax agency’s management record in recent years has been the subject of multiple critical reports.

The Government Accountability Office (GAO) has been recommending for years that the IRS update its internal management systems, most recently in a December 2022 report.

The tax agency “prioritized processing its backlog of tax returns, but its current inventory of unprocessed returns remains high. At the end of 2021, IRS had a backlog of about 10.5 million paper returns and returns stopped for errors ... however, as of late September 2022, IRS had about 12.4 million returns to process, resulting in refund delays for millions of taxpayers,” the GAO report stated.

And even within the IRS, experts point to the tax code’s complexity and the resulting difficulties it creates for everybody as the tax agency’s biggest problem. Thus, Erin Collins, who heads the IRS’s Taxpayer Advocate Service, said in her most recent annual report that the most important thing Congress can do regarding the IRS is to simplify the federal tax code.

“The tax laws are overly complex, burden America’s taxpayers, and negatively impact voluntary compliance. The system of preparing and filing taxes is too difficult because it is costly and time-consuming. This is especially problematic for taxpayers who access social programs through the IRS and for small-business taxpayers. Some of this complexity exists because the IRC is antiquated and does not mirror modern life.

“The tax code can be simplified by making it easy to understand, which would make it easier for the IRS to administer, and easier for taxpayers to comply with their tax obligations,” Collins said. “Simplifying the code is the most important step Congress can take to reduce taxpayer compliance burdens. Simplification is essential to the integrity of the U.S. tax system and will enhance voluntary compliance.”

Taxpayers Protection Alliance President David Williams told The Epoch Times that he sees multiple reasons for members of both parties in Congress to stop the IRS program from going forward.

“Any free file program run by the IRS is a bad idea for many reasons.  Fundamentally, this changes the role and responsibility of the IRS from tax processor to tax preparer. The IRS can barely just process returns now, as witnessed by the backlog of refunds owed to taxpayers,” Williams said.

“Private firms and individuals fill out tax forms trying to maximize refunds, the IRS will have no incentive to provide large refunds to taxpayers,” Williams said. “There is no reason to trust the IRS with even more sensitive financial information. The IRS will require a significant amount of more personal financial information, which is an invasion of privacy, and the IRS has a horrendous track record of securing sensitive taxpayer information with high profile data breaches.”

New America employed 215 individuals and received $36 million in contributions, according to the foundation’s 2021 IRS 990 tax return, the most recent available. Among revenue sources listed in the 2021 return were U.S. Department of State grants of $1.75 million for a “blockchain trust accelerator” and $1.2 million for “ranking digital rights.”

Also listed among the revenue sources for 2021 was $500,000 from the Tides Foundation, a San Francisco-based left-wing group that pioneered in the creation and growth of “dark money” in politics, by providing an intermediary to channel donations from funders who want to remain anonymous to controversial causes.

New America CEO Anne-Marie Slaughter receives more than $550,000 in annual compensation from the foundation. From 2009 to 2011, she was director of policy planning for the State Department under then-Secretary of State Hillary Clinton.

“The Biden administration should have had the decency to hire political cronies who weren’t publicly known advocates of this IRS power grab to ‘evaluate’ the scam,” Capital Research Center President Scott Walter told The Epoch Times. “Instead, they chose New America, a hotbed of Democrat politicos funded by billionaire left-wing foundations like the Ford Foundation and George Soros’ Open Society Foundation.”