LEGISLATION PROPOSED TO BAN 'RETURN-FREE' SYSTEM: H.R. 5114, the Tax Return Choice Act of 2006, was introduced in the House and referred to the Ways and Means Committee. The bill, which has 88 Republican and 17 Democrat co-sponsors, would prohibit the Internal Revenue Service from completing individual tax returns other than through the programs already offered through the Free File Alliance, Taxpayer Assistance Centers, Tax Counseling for the Elderly, and Volunteer Income Tax Assistance programs.The bill reflects the efforts of a number of groups concerned that a return-free system similar to the one used in the U.K., Germany and Japan would be a step backward from voluntary compliance, and would raise taxes on those who used it. Under such a system, the tax agency computes final tax liability based on third-party data, such as W-2s and Form 1099s, and sends the taxpayer a written determination and a bill. The taxpayer can accept the calculations and pay the bill, or wait for a refund. The taxpayer can then make minor adjustments, or may disregard the determination and prepare a separate return.
Since few taxpayers challenge the government findings, critics say the impact is to raise taxes, and contend that the same agency that collects taxes, writes tax regulations, collects revenues, performs audits and enforces compliance should not also become the tax preparer.
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