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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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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The IRS and me

I do my own taxes. Over the years, I have figured out the increasing number of forms that I have to fill out. They are not that difficult for anyone who can do simple arithmetic and is comfortable with “if …, then …” logical reasoning.

I do not use a professional tax preparer since I figure I will be able to exercise more care since I know the information well and can devote careful attention to it, rather than someone who has to deal with a whole lot of forms and documents. I also do not use the commercial software out of principle. I resent the fact that the government has made a deal with these software companies to not provide their own direct online tax filing system, which would be the logical thing to do. I do not see why I should give my personal data to a private company that lobbies to keep the tax rules complicated so that more people would come to them.
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How tax software companies fought simple tax filing

The way we file taxes in the US is odd. For most of us, almost all the documents that we use to prepare our tax returns are also provided directly to the government, so the government has the same information that we use. We then prepare our returns, send it in, and the government checks to see if we did it right. Surely it would make more sense for the government to calculate our taxes and then send us a statement to check to see if there was any error, the way that credit card companies compile a bill based on all our expenditures and then tell us how much we owe. If we wish, we can check their calculations with the receipts we have. Countries like Denmark, Sweden, and Spain already have such systems. [Read more…]