TurboTax and H&R Block under investigation

Thanks to a series of reports by ProPublica about how the tax preparation companies are thwarting efforts to provide free tax filings, the IRS has launched an investigation into TurboTax and H&R Block.

Amid calls for investigations from members of Congress, the IRS announced late Friday that it has convened a team of senior leaders to review concerns raised about its Free File public-private partnership with the tax software industry, following a series of ProPublica stories.

[A]s we have reported, use of the free option, which was never high, has dropped sharply in the past decade. Insiders say that Intuit and H&R Block deliberately steered users away from the Free File option and to paid products. At least five of the companies in the Free File program added code to their free websites effectively hiding them from Google and other search engines.

The move is a sharp break for the [IRS], which as recently as April 26 defended Free File as a “successful program and partnership that’s benefited millions of taxpayers.”

It remains to be seen if this review is just a means for the IRS to mollify critics until this fuss goes away or if they will take meaningful action.

The TurboTax ‘free’ tax software rip-off

According to the deal that the IRS has with the private tax preparation companies, the IRS will not develop its own free software provided that the companies offer free software to people earning less than $66,000 per year. Congress is now about to pass a measure making that agreement an actual law. But Justin Elliot and Lucas Waldron at ProPublica tried to file free and found that TurboTax has made it incredibly difficult for people to even locate the free service.
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Turbo Tax refunds to go out to the people they defrauded

Some time ago, the government made a deal with private tax preparation companies that they would not create their own tax preparation software that people could use to file their taxes for free (which would be the logical thing to do) and, in return the private companies would provide free tax preparation software to low income groups. But what the invaluable investigative journalistic outfit ProPublica discovered was that the private companies buried access to the free software so that almost no one could find them and, in addition, used fraudulent means to make people think they needed more expensive packages than they actually required.

State governments sued them and as a result, refunds are being issued to those thus defrauded.
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IRS starts process to provide free online tax filing software

The current tax filing system in the US is absurdly complex. Part of the reason is that the tax code is used to achieve various economic and social goals by making them have economic consequences. Another reason is that special interest groups lobby hard to get favorable items put into the code to benefit their own interests.

One of the less-publicized items in the big bill that was passed recently known as the Inflation Reduction Act is a provision to allow the IRS to study the creation software that people can use to file their taxes online.

The sweeping domestic policy bill passed by the House and Senate last week mandates that the IRS study options to provide a free tax filing option for Americans. That study represents a threat to the for-profit tax prep industry dominated by TurboTax, a product of the Silicon Valley company Intuit.

Unlike many developed countries, the U.S. does not offer free tax filing services for taxpayers, who instead pay billions of dollars every year to highly profitable private tax prep companies.

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As usual, the system is rigged in favor of the wealthy and against the poor

As I have said before, it is an iron rule in the US that any law or regulation that deals with taxes or economic or business regulatory issues will have loopholes that enable the rich to get richer, while at the same time placing increased hurdles in the path of the poor. We saw how the stimulus package supposedly meant for small businesses had most of the money immediately snapped up by big companies, including publicly traded ones and even professional basketball teams because they had the lawyers to quickly file the paperwork and the big banks that were tasked with disbursing the money found it most profitable and least work to shovel it to their bigger clients. Small companies who were the intended beneficiaries got shut out before they knew the doors were even open.
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How tax prep companies cheated 14 million people

Even after the private, for profit, tax preparation companies got a sweetheart deal from the federal government that the government would not develop its own software for the free filing of taxes, which would be the logical thing for it to do, the greedy companies wanted even more. As part of the deal, the private companies were required to provide free filing options for lower income people but what they did was make the process of finding and using the free process so complicated that only about 2% of the people eligible to use it actually did so. This resulted in the companies getting about a billion dollars in additional revenue.
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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.
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How the tax software industry lobbied against free, simple tax filing

The non-profit investigative journalism outfit ProPublica just received its third Pulitzer Prize in seven years since it started in 2008. The organization is one that I have been financially contributing to for some time. It was created at a time when newspapers were cutting back on investigative reporting because of the cost involved, though one could argue that it should be the heart of any news outlet.
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