Former IRS Heads Ought to Know: Don’t Rush Into a Gov't-Run “Return-Free” Scheme

Much has been written on these pages about unwise proposals to give the IRS more power and tax dollars to go into the tax return business. These “return-free” schemes have been panned across the ideological spectrum as fraught with technical difficulties for the tax agency, perils for taxpayers’ rights, and the potential loss of focus on tax simplification to make filing easier for everyone. 

Given these widespread concerns, taxpayers could be forgiven for thinking that just about the only support for return-free would come from turf-hungry IRS officials, waiting to expand their control and influence over taxpayers’ everyday lives. In this case, not so, as the two most recent former heads of the IRS explained.

During a panel discussion this week featuring our friend Mark Bloomfield at the American Council for Capital Formation, John Koskinen (IRS Commissioner from 2013-2017) and David Kautter (Acting Commissioner from 2017-1018), many aspects of the IRS’s information technology (IT) challenges came to the fore, including overhaul of the oldest public-facing database in the entire federal government, telephone customer service, and tax return backlog processing. 

This author had the privilege of asking Commissioners Koskinen and Kautter about the need to prioritize any funding increases for the IRS toward these kinds of improvements, rather than dumping resources indiscriminately into heavy-handed audits or other enforcement tactics. Both spoke up in favor of putting the funds toward customer service IT. Koskinen reminded the audience that one obvious but often overlooked way to reduce the incoming volume of inquiries to IRS operators is to answer the phone more often, more quickly, and with the right response, so that discouraged taxpayers don’t have to call back repeatedly with the same question.

Also important, however, was what both Commissioners agreed should not be prioritized in the IT space: return-free. Their remarks are instructive. Commissioner Koskinen noted that, “It’s years down the road because there are other things much more critical.” He also neatly summed up the challenge of implementing return-free in such a complex tax system: “A lot of people, once you get in the middle class, with a lot of deductions and other issues, then you’re probably never going to get a system that automatically does it because you have to have a lot of data that goes behind it.” For his part, Commissioner Kautter added that in regards to return-free, “The IRS needs to get its technology house in order, and until that occurs, I think that it’s unwise.”

We could not agree more with those assessments. Writing for InsideSources earlier this month, NTU Foundation’s own Andrew Wilford observed:

Putting the responsibility of calculating your taxes in the hands of the agency primarily responsible for extracting revenue creates an obvious conflict of interest. What’s more, the IRS’s calculations may cause taxpayers to miss out credits and deductions if it doesn’t know you qualify for them. But even if taxpayers could count on the IRS to have their best interests at heart (they can’t), there’s little reason to think the IRS can handle the responsibility. After all, the IRS is in bad enough shape trying to take care of the duties it already has this filing season.

The tarnished history of return-free predates by many years the terms of Kautter and Koskinen; as we have detailed before, it was the IRS’s own technological shortfalls to self-manage electronic filing that the public-private partnership known as Free File was created in the first place. 

Proponents of a return-free scheme on Capitol Hill should take note: the best endorsement – or repudiation – of a product comes from those most familiar with its development. In the case of return-free, two officials who are as close to that product as anyone can get have just reminded us to best keep it on a back shelf well away from taxpayers – where NTU believes it belongs.