Deliberately making tax preparation complicated


The US does not adopt two simple practices that are standard in many countries: the first is to provide free tax filing software to all people and the second is that the government could calculate the first draft of your taxes for you and let you know and you sign off if you agree. Right now in the US, you have to use commercial tax preparation software that offers it free only to people who have income below a certain threshold but do not advertise that service so few take advantage of it.

According to the IRS commissioner, one of the reasons given for the focus on auditing poor people is that the EITC provision that benefits them is complicated and a lot of people get it wrong. Having the IRS adopt the above two practices would immediately eliminate that problem and free up auditors to go after the big cheaters.

Yesterday, I mailed my taxes and forms to the IRS. Yes, I still use snail mail for this purpose. I do my taxes on a spreadsheet that I created and update each year, then transfer the numbers to the fillable pdf forms that the government provides, and send it in with the supporting documentation. Why don’t I take advantage of the software that is available to file electronically? Because I object to the collusion between the government and tax preparation companies to prevent the IRS from providing those services directly to people. I refuse to use these companies’ services since I do not see why I should give my personal information to a private company, free or otherwise, and go through them to deal with the government. Furthermore, some of these ‘free’ services use the information they get from you to target you with advertising.

Meanwhile, lawmakers are seeking to go even further in the wrong direction and put into law a longstanding practice that bars the IRS from providing free online tax filing services directly to the public. The tax preparation companies have lobbied both parties heavily for this legislation and it is being sponsored by Democratic congresspeople.

Last week, the House Ways and Means Committee, led by Rep. Richard Neal, D-Mass., passed the Taxpayer First Act, a wide-ranging bill making several administrative changes to the IRS that is sponsored by Reps. John Lewis, D-Ga., and Mike Kelly, R-Pa.

In one of its provisions, the bill makes it illegal for the IRS to create its own online system of tax filing. Companies like Intuit, the maker of TurboTax, and H&R Block have lobbied for years to block the IRS from creating such a system. If the tax agency created its own program, which would be similar to programs other developed countries have, it would threaten the industry’s profits.

“This could be a disaster. It could be the final nail in the coffin of the idea of the IRS ever being able to create its own program,” said Mandi Matlock, a tax attorney who does work for the National Consumer Law Center.

Experts have long argued that the IRS has failed to make filing taxes as easy and cheap as it could be. In addition to a free system of online tax preparation and filing, the agency could provide people with pre-filled tax forms containing the salary data the agency already has, as ProPublica first reported on in 2013.

As a result of ProPublica drawing attention to this provision that had been tucked into a bill, this bill is drawing greater scrutiny from progressive Democrats but the Democratic-controlled House of Representatives passed it anyway. It now goes to the senate where it will likely pass.

This time of year is also when the right wing will selectively use statistics to argue that the rich are taxed far too much, by looking at only federal taxes and ignoring all the other taxes that people pay.

Comments

  1. blf says

    The State Department has a free-to-use electronic forms-fillout for a passport, which I recently used to renew mine. The basic idea is you answer a series of questions, it selects the proper form, and you print out and sign the completed form, attach your photograph &tc, and “send” it in (snail-mail or…). In practice, the only problem I had is when I discovered a mistake (typo) after printout, I had to go through the entire sequence again; there is no “saving” of “draft” copies. My application wasn’t quite routine: As one example, I live overseas, and for various reasons wanted to collect my new passport in-person at the local Consulate rather than having it mailed to me. Despite “glitches” like that, it worked. Quite rapidly too, about one week from application to collection…

    (Some countries supposedly have fully-electronic passport application(? renewal?) processes, including allowing “digital” photographs. As far as I know, the States still requires oddly-sized (pseudo-)analogue photographs. I say “pseudo-analogue” because the camera used for mine was clearly digital, albeit the fixating of the image onto the paper took a few minutes, as-if there was a “Polaroid”-like process then happening?)

  2. colinday says

    Et tu, John Lewis?

    Also, my state asks people to file electronically, but recommends using Internet Explorer.

  3. Jazzlet says

    In the UK anyone employed solely by one organisation will have their taxes sorted through Pay As You Earn (PAYE) by whoever they work for. The only thing you have to check is that you are on the correct basic code. If you work for more than one organisation you may have to do some of your taxes yourself, which can indeed be done totally on-line and is reasonably straightforward.

    And yes you can also apply for a passport or a driving license on line if you already have the other document. You do have to be careful with this though a if the picture used is more than ten years old your document could be declared invalid, in fact I need to send in a new picture for this reason.

  4. Jazzlet says

    Damn missed out that the on-line portal is provided by the Government and is also used by the self-employed.

  5. says

    This bill is nothing new; it has been going on for decades. I believe that the last attempt to reform taxes and simplify them was cratered by Intuit back in the late 90s.

  6. Allison says

    One year, I tried to use TurboTax. The tl;dr: I had to do so many overrides that it was easier to calculate my taxes myself than to figure out how to make TurboTax do it.

    The two things I ran into:

    1. I had situations that TurboTax had no provision for. IIRC, I had part-year use of part of my home for Schedul C business purposes, but I did not want to take depreciation. Impossible.

    2. In some cases, TurboTax was just plain wrong.

    Another annoyance was that it insisted on use reams of paper. The year I used it, I had to send off about 20 sheets of paper.

    It ended up being easier to do it myself, even with Schedule C stuff, even with having to do employer-side tax stuff for our nanny. I’m sure TurboTax is great — for people who file 1040A (yeah, I know, there’s no 1040A any more — because they simply renamed it to 1040, and added a zillion more “schedules.” Fortunately, all I had to do was change the line numbers in the line number column, the calculations were the same.

    NY State has its own new wrinkle. Their equivalent of the 1040 — the IT-201 — now comes
    down in a PDF with javascript that only allows you to fill it out their way, in their order, and if you try to disable the javascript, it won’t load. I figured out how to disable it, anyway, but I’m sure they’ll plug up those possibilities for next year. They don’t call NYS the “Empire State” for nothing — it’s not a democracy, it’s an Imperium, with Cuomo as its Nero.

  7. mastmaker says

    Mano,

    I used to use TaxAct. I switched to FreeTaxUSA when TaxAct raised their prices (for California residents, at least) 2-3 fold in one year. I pay less than $20 and spend an average of 45 minutes a year filing taxes electronically. Admittedly, my taxes are somewhat on the easier side, made even easier by Trump’s tax shenanigans (went from itemized to standard deductions). But FreeTaxUSA save me a whale of time. Paying upwards of $50 for the big name boys of tax software is a ripoff, absolutely.

  8. lochaber says

    I’m pretty happy with the California state Franchise Tax Board. They’ve got a pretty simple system, where you only have to fill out a handful of things (basic identifying details, wages, deferred taxes, etc.), answer a bunch of yes/no questions, and that’s about it. I think the whole process for CA took me less then 15 minutes.

    I really think the IRS could quite easily do something similar, if it were allowed to.

  9. sonofrojblake says

    What baffles me is why the US public tolerates this shit.

    As Jazzlet says, in the UK it’s incredibly simple. If like me you simply have a job for a single employer, you don’t have to do anything -- your employer simply removes your tax from your pay before you ever see it. Occasionally you’ll get overcharged and get a refund (for instance if your employment ends before the tax year), but such things are rare.

    I was quite old before I realised everyone in the US has to do their tax calcs every year -- a massive and pointless waste of time. I do wonder what would happen if the US public decided they wanted a system similar to the UK to make it simpler for employees and slightly harder work for employers . Given that everyone in the US supposedly thinks they’re going to be a millionaire employer any day now, that probably wouldn’t work, but…

    What if everyone in the US went on tax strike? What if everyone with a job simply said “no, not this year”. How much would it cost the treasury? Enough to make them sit up? Or would the famously incarceration-happy US simply jail everyone who had the temerity to stand up to the system? Is there any chance it could work?

  10. Mano Singham says

    sonofrojblake @#9,

    If I had to guess a reason it would be that many Americans are very insular and take it as an article of faith that they have the best system for everything and that there is nothing to learn from other countries. Of course political and business leaders know better but since they benefit from these complex systems, they do not try to disabuse the public.

    The same thing with the enormously complicated and expensive health care system.