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House Passes Bill to Bar IRS From Making an In-House Tax Filing Method

Andrew Martins
Andrew Martins

Tax software companies will get a big boon if the Taxpayer First Act passes.

For the first time in decades, the IRS itself is facing real reforms from Capitol Hill that lawmakers on both sides of the aisle believe will help most taxpayers. Proponents of the bill are excited that it passed in the House yesterday, but opponents derided the measure as a big favor for tax filing companies.

H.R. 1957, dubbed the Taxpayer First Act, passed the House Ways and Means Committee on April 2 with bipartisan support. Both parties further backed the bill yesterday, voting 225-192 in its favor.

Ways and Means Chairman Richard Neal (D-Mass.) said the bill has the tools to "protect low- and moderate-income taxpayers, create sensible enforcement reforms, and ensure the IRS provides taxpayers and small businesses the assistance they deserve."

"The commonsense, much-needed reforms in this legislation will modernize the IRS and rightfully prioritize taxpayers," he continued.

The Ways and Means Committee's ranking Republican, Rep. Kevin Brady of Texas, said the need to make changes at the IRS was "years in the making" but became especially necessary after recent changes to the tax code. He called the Taxpayer First Act a "bold step to redesign the IRS."

"We are refocusing the agency to live up to its mission of serving taxpayers, overhauling the IRS's tools of enforcement, and strengthening the IRS's ability to proactively combat identity theft and fraud," Brady said. "Good, bipartisan work like the reforms the House passed today should be where Congress' focus remains, not on a misguided rush to impeachment like many on the left continue to push."

Even though both parties support the measure and it is expected to quickly make its way through the Senate, some of its proposals have opponents worried.

Bill blocks a free solution from the IRS

In what may be the most controversial part of the bill, lawmakers inserted a provision in the Taxpayer First Act that prevents the IRS from ever creating its own free tax filing tool. As a result, millions of Americans will have to use third-party applications like TurboTax, Quicken and H&R Block to file their taxes when they may not have needed to.

As it stands, the IRS has a memorandum of understanding agreement with the Free File Alliance that it will not create its own tax software as long as companies that offer their own tax preparation services provide a free option for people who make less than $66,000 annually.

Roughly 70% of Americans fall within the threshold for filing their taxes for free. While roughly 97 million taxpayers can take advantage of the free services, just 3% have taken advantage of the offer.

Opponents of an IRS-run alternative warned that such a free public option would be detrimental to private companies. Those in favor of an in-house IRS free tax preparation solution, however, said not taking such a measure means millions of Americans will be at risk of paying for services they may not need.

Following the Taxpayer First Act's passage in the House, Senate Finance Committee ranking member Sen. Ron Wyden (D-Ore.) said the bill was exactly the thing he's opposed for years. What he's suggested in the past is that the U.S. join the three dozen countries around the world that have "return-free" systems.

"Again and again in my service in the Senate, I have battled the tax-preparation software industry to simplify filing taxes for the typical American," Wyden said. "In fact, the industry spent millions to fight my proposals in two tax-reform bills to allow a 'simple return,' which would require the IRS to send any American a pre-filed tax return on request using the agency's tax information. I will continue to push for my proposal for the pre-filed 'simple' return and the principle that a taxpayer should not have to use a private company to pay their taxes online."

Bill addresses IRS audits and disputes

Though the prohibition of a free tax filing solution from the IRS may be the marquee provision in the Taxpayer First Act, there are other considerations in the bill that could fundamentally alter how the IRS functions.

The bill includes measures that would change how disputes between the IRS and taxpayers will be handled. If it passes, an independent appeals process would be created "so that taxpayers would know they are being treated fairly," according to officials. In that same vein, taxpayers would be able to access the same information that the IRS has during an ongoing dispute.

The bill also requires the IRS to submit a plan to Congress that restructures the agency, in a bid to "improve efficiency, enhance cybersecurity and better meet the needs of the taxpayers," said Republicans on the Ways and Means Committee.

When the agency conducts an audit, taxpayers will receive notice before their friends, neighbors and clients are notified. The IRS will also be required to extend advanced notice before seizing assets.

Image Credit: RomanR/Shutterstock
Andrew Martins
Andrew Martins
Business News Daily Staff
Andrew Martins has written more than 300 articles for and Business News Daily focused on the tools and services that small businesses and entrepreneurs need to succeed. Andrew writes about office hardware such as digital copiers, multifunctional printers and wide format printers, as well as critical technology services like live chat and online fax. Andrew has a long history in publishing, having been named a four-time New Jersey Press Award winner.