Time for a Tax Return Filing Fee

Abstract

The IRS faces the monumental task of verifying, to the extent possible, the tax consequences reported on the hundreds of millions of tax returns filed each year. It does so with meager and shrinking resources. Some taxpayers burden the filing system more than others. At one extreme, a taxpayer who earns only income that is subject to third-party reporting and withholding and who claims the standard deduction adds very little to the IRS’s burden. At the other end of the extreme, a large business engaged in numerous complex transactions the tax treatment of which are not free from doubt demands significant resources if that taxpayer’s claimed tax outcomes are fully examined. In light of this landscape, this Article makes the novel proposal that Congress require payment of a tax return filing fee by some taxpayers. The amount of the fee would vary based on some of the factors that make each taxpayer more or less difficult to audit, with carve-outs for difficult-to-audit items that are disproportionately claimed by lower-income individuals. The goals of the proposal are three: first, to make the system fairer, second, to raise additional revenue, and third, to improve efficiency by encouraging taxpayers to take into account the costs imposed on the tax administration system by their complex transactions.