April 17, 2019

Duckworth, Warren Call on the IRS to Improve the Tax Refund Process Following Release of GAO Report

Tax-time financial products place financial burdens on low-income Americans, report finds


[WASHINGTON, D.C.] – U.S. Senators Tammy Duckworth (D-IL) and Elizabeth Warren (D-MA) sent a letter to the Internal Revenue Service (IRS) after the release of a Government Accountability Office (GAO) report that found low-income and minority taxpayers are more likely to use costly tax-time financial products; companies are failing to provide clear, timely information on fees and that the IRS must improve data quality. In their letter, the Senators requested more information on how the IRS can better regulate tax preparers and explore dispersing refunds more quickly so that taxpayers can access these critical funds without using costly products. The GAO report indicated that low-income and minority taxpayers are more reliant on tax-time financial products in part because they are more likely to need quick access to cash to meet their financial obligations.

"The findings of the GAO report are alarming, showing that low-income taxpayers -- those with the greatest need for additional funds -- are forced to buy expensive tax-time products because they need to pay bills due before refunds arrive," the Senators wrote. "As the distributor of tax refunds, the IRS plays a role in perpetuating this problem."

In April 2017, Senator Warren asked the GAO in an oversight letter to conduct a review of the tax-time financial products most commonly used by taxpayers, as well as the transparency of and fees charged for these financial products. The newly-released GAO report found that:

  • Low-income and some minority taxpayers are more likely than other taxpayers to pay for tax-time financial products, placing additional financial burdens on lower-wealth populations who tend to live paycheck-to-paycheck;
  • Tax preparers surveyed by GAO failed to give consumers clear and timely information on costs and fees for these products, increasing the likelihood of consumer harm;
  • Banks and tax preparers began offering a new fee-based loan product in 2018, raising questions for lawmakers and regulators; and
  • The IRS needs to improve its data collection and reporting methods for tax-time financial products. In response to the GAO investigation, the IRS has indicated it will make changes to ensure the accuracy of its data.

Duckworth, Warren and 9 of their colleagues also re-introduced the Tax Filing Simplification Act last week, which would return free-filing by directing the Internal Revenue Service (IRS) to develop a free, online tax preparation and filing service that does not require the sharing of private information with third parties. The legislation would also prohibit the IRS from entering into agreements that restrict its ability to provide these services while eliminating red tape for all taxpayers and ensuring that more eligible individuals – including millions of low-income Americans – receive the important tax refunds they deserve, like the Earned Income Tax Credit.

A summary of the GAO report is available here, and the letter to the IRS can be found here.