2. Create A Modern, Government-Run Tax Filing Option, Starting With “The Portal”

Many of the near-term items presented in the previous section—especially those around non-filers and non-claimant filers—are stopgap measures. They are steps to work around the prevalence of non-filing and the frequency with which filers commit errors on their tax forms and so fail to claim credits. In an ideal world, though, it would simply be far easier to file and far harder to make mistakes when doing so than it is now. This section describes a potential roadmap to get to that world.

Many advocates have long envisioned a world in which doing taxes is far less painful for all taxpayers, with the IRS even automating the entire process in simple cases, saving much of the $11 billion Americans spend annually on tax prep services. The IRS would calculate taxpayers’ refund based on existing wage data, and then offer a simple and free tool for taxpayers to make corrections, provide additional information, review calculations, and finally file taxes. Such a system is commonplace in many countries, including Spain, Chile, Sweden, Estonia, and Iceland, and a proposal to create it has been repeatedly introduced in Congress by Sen. Elizabeth Warren (D-Mass.) and other Senate Democrats.¹ Not only would such a process bring more non-filers in the door and sharply reduce the number of filers who neglect to claim valuable credits, but it would be a bold step toward federal government responsiveness, building a twenty-first-century experience with the federal agency that has the most direct and intimate involvement in Americans’ lives.

There have been two main barriers to implementing this vision: first, a pledge in the Free File agreement (which governs the IRS partnership with private industry to provide limited free tax prep services for low-income families) that precluded the government from developing such a product;² and, second, the sheer magnitude of the project itself, which seemed overwhelming and intractable. But recent developments have made both changes newly surmountable. First, in 2019, after an exposé of predatory practices by tax prep companies, the non-compete pledge was removed from the Free File agreement, explicitly freeing the government to provide tax prep services to low-income people directly. Second, in early 2020, the IRS launched the EIP Expedited Filing Portal (also known as the Non-Filer Portal), which allowed users to file a simplified tax return so as to claim the EIP; and, despite serious usability issues, over 7 million did so, a majority of the eligible population. The portal was a powerful proof of concept: The IRS can provide a simplified filing experience for low-income people, and this simpler process, marketed as a method to access generous benefits, can break down relevant barriers for many households. Moreover, it highlighted a straightforward way to begin to iteratively develop the needed functionality for an expanded portal, starting with high-need households and simple use cases.

With these barriers removed, the government—internally with an expanded team at the IRS or with the assistance of the U.S. Digital Service or 18F —can and should build this tool in the coming years. Such a tool would save tens of millions of households from much of the administrative burden of tax filing, putting an average of $400 annually into the pockets of EITC-eligible families who currently use tax preparation services—and could facilitate getting up to $10 billion in unclaimed EITC/CTC to families who critically need it.

Three important principles must guide the development process and sequencing:

• Development should be sequenced to help the lowest-income people first, and those who have the most to gain from filing—specifically, EITC- and CTC-eligible households who do not usually file taxes.
• The tool should be as simple as possible for every use case, so the entire project does not collapse into traditional tax filing.
• The IRS should proceed iteratively and lock-in short term gains before expanding to more complex use cases. Not only is this a best practice in modern tech development, but it helps build support for the program and reduces the risk of the project becoming a political football before it has delivered actual value.

The minimum viable product (the MVP)—the simplest possible version of a new tool that can be made available to users—for this project should be a new and improved version of the EIP Expedited Filing Portal. The portal: (1) serves non-filers only, thus avoiding direct competition with private industry,³ (2) inherently serves very low-income people, and (3) by collecting only a limited set of information to file a lightweight return, enshrines the precedent of keeping the tool as simple as possible, and eschewing functionality that is not strictly necessary.

This proposal anticipates replacing the existing portal, and launching a new one as the MVP of a broader filing reform. The IRS did impressive and powerful work launching the Expedited Filing Portal in 2020 on an incredibly short timeline amid a pandemic—but, given more time, the IRS can do better still. Built on Free File software,⁴ the existing portal is not written in plain language,⁵ is not mobile responsive, and is simply not very user-friendly. Moreover, as part of Free File, it is not a government-owned product, and cannot form the basis for a broader reform. A tool like the portal is the first step on the road to broader filing reform, but the current portal is not on that path.

The initial development required for this relaunch of the portal is limited, and it is likely—if a development team began work in early/mid-2021—that the product could be available in time to help eligible families claim EIP #3 before the December 31 deadline.⁶

We envision several iterative phases of development, lasting a total of two to three years. For all programs but EIP, the nature of the IRS’s work is that development generally must occur between filing seasons, with new functionality launching in January, for that year’s filing season.⁷ As such, we provide estimates of which filing season it might be plausible to launch each enhancement, given reasonable research, development, and testing time.

• Phase 1: EIP Portal for non-filers. The MVP, again, is a new version of the EIP Portal: EIP-eligible households without a tax filing obligation use the tool to register for EIP. The potential user base is likely around 10 million households. On the front end, this means collecting relatively limited data from users, and a relatively simple warning about who can or cannot use it. The significant work is the backend connection to the IRS return processing system, which will be the core of the tool over time. Still, such a backend connection should be relatively simple to establish compared to other government technology, since the IRS already provides e-file functionality to myriad external actors. If a team began work in early/mid-2021, at normal development speeds, this new portal should be able to launch this calendar year.
• Phase 2: EITC/CTC/EIP Portal for non-filers. The portal expands to allow households without a filing obligation to claim the EITC and CTC as well. (This expands the functionality, but not the user base.) Notably, the IRS has already agreed to this step in principle, telling Sen. Sherrod Brown in a June 2020 hearing that expanding the portal to cover other IRS benefits is indeed “the future of the IRS.” For simplicity, the IRS may elect to restrict this release to households with W-2 income only. This enhancement means confirming slightly more data about family structure and other requirements (e.g., 6 months’ residency in the United States), and, possibly, some income data.⁸ These are front-end elaborations, but no new backend connections are required. Given that, as of this writing, the 2021 filing season is already underway and most EITC/CTC returns will be filed within weeks, it is not reasonable to launch this version of the portal this year; rather, this improved version of the portal could be ready in time for the 2022 filing season.
• Phase 3: Tax filing software for simple tax situations. The portal becomes full-fledged tax filing software for households with simple taxes: W-2 income only, and no itemized deductions. This expands the user base to tens of millions of taxpayers—disproportionately low-income taxpayers who currently may rely on unscrupulous or even fraudulent return preparers.⁹ These are again front-end elaborations only, with minimal new backend;¹⁰ in this version, users still enter their own income data. This version of the tool should be able to launch either in the 2022 or 2023 filing seasons.
• Phase 4: Tax filing software that “does taxes for you” in simple situations. This release downloads tax data from IRS systems and calculates tax liability for the user. The user has to enter only limited data about family structure, and add any missing income. The major workload here is setting up a backend connection to IRS income datasets. This version of the tool would likely launch in the 2023 filing season. Note that, to accommodate this enhancement, the IRS may have to either delay the tax filing deadline, or find a way to process income data earlier in the year; under the status quo, the IRS may not have income data ready to support the tool until after the filing deadline has passed. That said, recent updates to the income reporting system, including the new 1099-NEC, have accelerated data reporting to the IRS, such that more income data is processed earlier in the year.¹¹ And processing income data faster still is not at all out of the question; states like California already do so.
• Phase 5: Additional data sources and complexity. Future releases would: (a) accommodate data on family structure submitted by state governments, so that the tool pre-fills family data as well as income data, (b) accommodate more complex tax situations, and (c) provide functionality in languages other than English and Spanish.¹²

The web application envisioned here will of course provide little benefit to households with no or limited internet access. And, even incorporating best practices in accessibility, the application may—like many online tools—exclude some people with disabilities.¹³ Alongside its primary work developing a modern and user-friendly web application, the project team should do intensive user research to determine the best way for the IRS to offer a non-online option. This may take the form of phone-based filing (like TeleFile, the 1992-2005 program that allowed taxpayers to file a return via telephone and was used by 4 million filers per year) or a paper solution—provided such paper returns do not go to the back of the IRS processing queue.

A new, USG-built expedited filing portal for EIP claims will not be ready for several months at the very earliest, but there is a benefit to having some version of the portal available immediately. As such, the IRS should consider making the existing Free File expedited filing portal available for the next several months, until the new portal can replace it. Possible near-term improvements to the existing portal are discussed in Section 1.2.

Free File is set to be renewed in late 2021, and the IRS should renew it, as no alternative will be ready by that time. One point is critical however: The IRS must ensure that the non-compete pledge—removed since 2019—does not reappear in the renewed agreement.