Watchdog Investigates IRS Scheme: A Taxpayer’s Nightmare

American Accountability Foundation seeks transparency on IRS’s direct file system

Journal Press: The American Accountability Foundation (AAF), a conservative watchdog group, has initiated an investigation into the Internal Revenue Service (IRS) regarding the development of a government-run tax filing program. Critics argue that this program would grant the IRS excessive power. AAF has made public records requests to obtain communications and other documents from the IRS and the Office of Management and Budget related to the creation of this system, known as “direct file.”

The idea of a free direct tax return system was included in the Inflation Reduction Act, a massive spending bill championed by Democrats and signed into law last year. The legislation required an independent third-party study to assess the feasibility of the direct file system, as well as a report by the IRS to Congress evaluating the study’s findings, the cost of implementing such a system, and taxpayer opinions derived from surveys.

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IRS Commissioner Daniel Werfel testified multiple times in recent months that no decision had been made about direct file. He stated that the agency would wait for the report, consult with Congress, and consider all options before moving forward. However, it was later revealed that the IRS had quietly built a functioning prototype of the direct file system before submitting the report to Congress. The IRS announced the availability of the system through a pilot program for a small group of taxpayers, set to begin in January during the 2024 filing season.

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Critics of the IRS’s actions claim that the agency had a pre-determined outcome and went against its commitments, including publicly consulting with Congress and refraining from acting without explicit legal authority. They argue that this potential government-run system would concentrate too much power in the hands of the IRS, drawing comparisons to the technical problems that plagued the government-run Healthcare.gov website during the rollout of the Affordable Care Act.

The prototype built by the IRS was intended to gather survey data to gauge taxpayer opinions on a direct file system. When approached for comment, the IRS clarified that the prototype was not a fully functional tool and did not involve real tax information. It was solely developed to assist in usability testing sessions.

The AAF’s Freedom of Information Act requests aim to obtain various correspondence and calendars related to the direct file system, shedding light on what is happening behind the scenes. Supporters of the direct file system argue that it would be free, user-friendly, and efficient for taxpayers. On the other hand, critics believe that empowering the IRS with such authority would lead to disasters, especially if the technology fails, and would open the door to potential audits from the large number of new IRS agents authorized by the Inflation Reduction Act.

It has also been revealed that the IRS contracted the New America Foundation, a left-wing think tank funded by liberal billionaires, to study the direct file system. The foundation has advocated for a government-run filing system in the past. Republicans have raised concerns about this choice and suspect that it was an attempt to ensure a predetermined outcome. The Biden administration also appointed a tax attorney and professor, Ariel Jurow-Kleiman, to work with New America. Jurow-Kleiman previously authored a paper stating that the IRS should adopt the most expansive version of the program, which would require the least amount of taxpayer input.

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Critics argue that these decisions by the administration raise questions about the fairness and impartiality of the IRS in handling Americans’ tax filings under a government-run system. They fear that individuals would be powerless in a tax process controlled entirely by the IRS. Moreover, concerns have been expressed regarding increased audits, particularly targeting lower- and middle-income Americans, due to the additional resources granted to the IRS by the Inflation Reduction Act. Treasury Secretary Janet Yellen has assured that audit rates for small businesses and households making less than $400,000 will not exceed historic levels.

Yellen has reportedly ordered the IRS to proceed with the pilot direct file system after reviewing the agency’s report. AAF’s investigation seeks to shed light on the development and implementation of the direct file program, ensuring transparency and accountability in the IRS’s actions. The outcome of this investigation could have significant implications for the future of tax filing and the balance of power between taxpayers and the IRS.