Frustrated by the Senate, taxman turns to the House

Triggering the ire of an influential conservative, Treasury Department officials urged House leaders to kill an amendment passed by the Senate to prohibit the IRS from getting into the tax-preparation business.

Grover Norquist, president of Americans for Tax Reform (ATR), sent a letter yesterday to Rep. Joe Knollenberg (R-Mich.) — the chairman of the Appropriations subcommittee that had jurisdiction over the Treasury Department’s budget — encouraging him to support the Senate amendment, which bars the IRS from “providing free electronic individual tax preparation outside of the Free File program.” The Free File agreement lets the electronic-tax-filing industry provide free tax-preparation and -filing services.

“I urge your active support for retaining this language in conference committee,” Norquist wrote. “The Free File provision in the Senate version of the [Treasury Department] appropriations bill is essential to prevent government from attempting to compete with the private sector.”

A spokesman for Knollenberg did not comment by press time.

Fourteen conservative groups, including the ATR, the Competitive Enterprise Institute, the National Taxpayers Union, Citizens Against Government Waste and the Club for Growth, sent a similar letter to Knollenberg last week.

GOP Sens. Kit Bond (Mo.), John Ensign (Nev.) and George Allen (Va.) jump-started a debate over whether the government should be allowed to prepare and file tax returns two weeks ago when they attached an amendment to a spending bill requiring the IRS to use private tax-preparation-software companies to prepare tax returns for citizens with incomes of less than $50,000.

The legislative action irked IRS and Treasury officials, who demanded that the 20 companies, which formed a coalition called the Free File Alliance (FFA), sign a letter repudiating the Senate’s action. When the Free File Alliance refused, the IRS — temporarily, it turns out — backed down and reached a four-year agreement with the group to continue the public-private partnership.

“We have an agreement with the private sector for the next four years to provide free filing,” said Taylor Griffin, a Treasury Department spokes-man. He declined to comment about the ongoing lobbying efforts in the House.

But Chris Smith, chief of staff to Treasury Secretary John Snow, and Kevin Fromer, Treasury’s legislative-affairs chief and a former House aide, have been pressing Ways and Means Committee staffers to assert their jurisdiction over the issue to kill the Senate amendment.

Smith and Fromer also have talked to House leadership and Appropriations Committee aides, GOP sources said.

The arcane issue of whether the public or private sector helps citizens prepare and file their taxes has galvanized conservatives.

“Some of us don’t want the government to take its monopoly status on writing taxes and extend it out into doing software,” said Norquist, who testified on the issue last May. “This is what they do in France. They do the taxes, they do the calculation, and this is also a problem for privacy.”

A Republican source familiar with the debate, fearing that House appropriators would side with the IRS, said, “It’s fascinating to me that Republicans on the Appropriations Committee continue to fund government competition. The Bush administration has not seen a big-government policy they haven’t liked.”

By siding with the administration, House leaders would reverse the position they took last year in nonbinding appropriations language, which stated, “Program implementation must be carried out in a manner that … continues software service independent from the government.”