Last month (July 2015), the Senate Appropriations Committee included a very damaging paragraph in its 191-page financial services budget bill. Under the guise of reducing Earned Income Tax Credit (EITC) error rates, the bill would quintuple the number of pages low-wage workers need to complete to file their taxes.
In other words, the bill alleges to increase compliance but would
ultimately only increase complexity. This strategy will harm low-wage
workers without tackling the problems it purports to address.
As members of the low-income free tax preparation community, we know the value of the EITC to taxpayers, and we work hard to file tax returns correctly. The Volunteer Income Tax Assistance (VITA) program, which is administered by the IRS and utilizes IRS-trained volunteers to serve low-income taxpayers, has a 94% accuracy rate. That’s better than any other large tax preparer in the country. In other words, #VITAWorks isn’t just a popular hashtag in the field—it’s actually true.
While
reducing filing errors is a worthy goal, increasing the difficulty of
filing federal tax returns is a highly ineffective method for
accomplishing that goal. The National Taxpayer Advocate has
repeatedly warned Congress and taxpayers of the negative impact the
complexity of the tax code and the tax-preparation process have on
taxpayer compliance rates. The booklet
for filing the EITC for Tax Year 2014 was already 37 pages,
substantially longer than the guidance for other credits and deductions.
The Senate proposal would further increase that complexity and force
self-preparers to answer many questions that are only applicable to paid
preparers. The complexity of filing the EITC already contributes to the
error rate; adding more burdens to the process will not help.
Furthermore, the vast majority of EITC claimants are not self-preparers, but rather file their taxes through paid commercial preparers. These paid preparers have higher error rates than self-preparers (and much higher error rates than returns filed through VITA). But the Senate proposal does nothing to address the compliance shortfalls among these preparers.
Competency testing and IRS oversight has contributed to making VITA one of the most accurate ways to file a tax return. However, the tax preparation field includes 40 million commercial preparers nationwide that are currently unregulated and many of whom lack adequate training, supervision or identification. Instead of placing additional burdens on low-wage workers, Congress should ensure that all tax filers have the information they need to file their returns accurately and that the paid preparer field is doing as good a job as VITA. That is why, earlier this year, Senator Ron Wyden (D-OR) and Senator Ben Cardin (D-MD) introduced the Taxpayer Protection and Preparer Proficiency Act, which would bring best practices to the commercial tax preparation field.
Increasing the filing burden for low-wage workers will not make their tax returns more accurate. Instead, it will create barriers for resource-strapped workers, which in turn will only decrease compliance and increase the number of tax filers who forego their earned credits due to the heightened difficulty of the process. Before piling up new burdens on low-wage workers, Congress should consider the Taxpayer Protection and Preparer Proficiency Act and related proposals to get workers the information and support they need to file their returns correctly.
As members of the low-income free tax preparation community, we know the value of the EITC to taxpayers, and we work hard to file tax returns correctly. The Volunteer Income Tax Assistance (VITA) program, which is administered by the IRS and utilizes IRS-trained volunteers to serve low-income taxpayers, has a 94% accuracy rate. That’s better than any other large tax preparer in the country. In other words, #VITAWorks isn’t just a popular hashtag in the field—it’s actually true.
Furthermore, the vast majority of EITC claimants are not self-preparers, but rather file their taxes through paid commercial preparers. These paid preparers have higher error rates than self-preparers (and much higher error rates than returns filed through VITA). But the Senate proposal does nothing to address the compliance shortfalls among these preparers.
Competency testing and IRS oversight has contributed to making VITA one of the most accurate ways to file a tax return. However, the tax preparation field includes 40 million commercial preparers nationwide that are currently unregulated and many of whom lack adequate training, supervision or identification. Instead of placing additional burdens on low-wage workers, Congress should ensure that all tax filers have the information they need to file their returns accurately and that the paid preparer field is doing as good a job as VITA. That is why, earlier this year, Senator Ron Wyden (D-OR) and Senator Ben Cardin (D-MD) introduced the Taxpayer Protection and Preparer Proficiency Act, which would bring best practices to the commercial tax preparation field.
Increasing the filing burden for low-wage workers will not make their tax returns more accurate. Instead, it will create barriers for resource-strapped workers, which in turn will only decrease compliance and increase the number of tax filers who forego their earned credits due to the heightened difficulty of the process. Before piling up new burdens on low-wage workers, Congress should consider the Taxpayer Protection and Preparer Proficiency Act and related proposals to get workers the information and support they need to file their returns correctly.
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