Computer & Communication Industry Association
PublishedMarch 18, 2010

CCIA Releases Study on IRS Tax Collection Proposals

With tax day less than a month away the Computer & Communications Industry Association has released a study it commissioned on the costs and benefits of a proposal to consider converting the current income tax system into an IRS–prepared tax assessment system, sometimes called “return free”. If this plan were adopted, the IRS would prepare and present tax bills to people, mainly low and moderate-income taxpayers.

The authors of the study, economists Robert Litan of the Brookings Institute and Jeffrey Eisenach of Navigant Consulting Inc., explain in “The Benefits and Costs of Implementing ‘Return-Free’ Tax Filing in the US” that under this type of tax preparation system the government would assess the tax liability for the average citizen and send them their returns to sign.

The IRS tax assessment system proposal projects sending bills to upward of 40 million taxpayers. The study estimates an error rate of at least 2.5 percent of the tax returns done by the IRS. “How would this impact peoples’ trust in government?” Eisenach said. In the UK, which has adopted a similar system of automatic income tax assessment by the government it is estimated that 6 million taxpayers’ returns are done incorrectly by the government each year and another 12 million face discrepancies in which the government doesn’t have the information it needs to complete the tax return.

Litan and Eisenach conclude that while the idea is superficially appealing, it would end up detracting from the purported goals of simplifying taxes and encouraging more people to file electronically.

The Senior Labour Party Member of Parliament and the former British Treasury Secretary in the Blair Cabinet, Alan Milburn, commented on the study and compared it to the British experience with a central government income tax assessment system. “The system is prone to errors and it is not able, on its own, to accurately determine taxpayer eligibility for tax credits creating problems particularly for lower and middle citizens.” He went on to say “If the true objective is to nationalize the tax functions in order to increase revenue receipts, the government needs to be up-front and transparent with the people about the true intention and purposes.”

CCIA is a long time supporter of a private- public partnership program called Free File, which offers free access to consumer tax software and electronic filing for military and low-income taxpayers. The following statement can be attributed to CCIA President & CEO Ed Black.

“Our industry has a history of working with the IRS to protect consumer and taxpayer interests and this report provides useful information for all parties as we continue that dialogue.

“We are committed to working with the government to develop the best strategy on standards for this technology and ways in the future to make tax filing easier and more accurate, while still protecting taxpayers.

“We know from other work on privacy issues that IRS-Prepared Tax Assessments would be controversial, since many are reluctant to yield too much control to the IRS.

“This report explores the economic and policy implications of moving away from a taxpayer controlled system and we expect it will be a basis for ongoing discussions.”

Read the full report