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Friday, October 21, 2016

by Liz Day, Pro Publica.

This story was co-produced with NPR.

Imagine filing your income taxes in five minutes — and for free. You’d open up a pre-filled return, see what the government thinks you owe, make any needed changes and be done. The miserable annual IRS shuffle, gone.

It’s already a reality in Denmark, Sweden and Spain. The government-prepared return would estimate your taxes using information your employer and bank already send it. Advocates say tens of millions of taxpayers could use such a system each year, saving them a collective $2 billion and 225 million hours in prep costs and time, according to one estimate.

The idea, known as “return-free filing,” would be a voluntary alternative to hiring a tax preparer or using commercial tax software. The concept has been around for decades and has been endorsed by both President Ronald Reagan and a campaigning President Obama.

“This is not some pie-in-the-sky that’s never been done before,” said William Gale, co-director of the Urban-Brookings Tax Policy Center. “It’s doable, feasible, implementable, and at a relatively low cost.”

So why hasn’t it become a reality?

Well, for one thing, it doesn’t help that it’s been opposed for years by the company behind the most popular consumer tax software — Intuit, maker of TurboTax. Conservative tax activist Grover Norquist and an influential computer industry group also have fought return-free filing.

Intuit has spent about $11.5 million on federal lobbying in the past five years — more than Apple or Amazon. Although the lobbying spans a range of issues, Intuit’s disclosures pointedly note that the company “opposes IRS government tax preparation.”

The disclosures show that Intuit as recently as 2011 lobbied on two bills, both of which died, that would have allowed many taxpayers to file pre-filled returns for free. The company also lobbied on bills in 2007 and 2011 that would have barred the Treasury Department, which includes the IRS, from initiating return-free filing.

Intuit argues that allowing the IRS to act as a tax preparer could result in taxpayers paying more money. It is also a member of the Computer & Communications Industry Association (CCIA), which sponsors a “STOP IRS TAKEOVER” campaign and a website calling return-free filing a “massive expansion of the U.S. government through a big government program.”

In an emailed statement, Intuit spokeswoman Julie Miller said, “Like many other companies, Intuit actively participates in the political process.” Return-free programs curtail citizen participation in the tax process, she said, and also have “implications for accuracy and fairness in taxation.” (Here is Intuit’s full statement.)

In its latest annual report filed with the Securities and Exchange Commission, however, Intuit also says that free government tax preparation presents a risk to its business.

Roughly 25 million Americans used TurboTax last year, and a recent GAO analysis said the software accounted for more than half of individual returns filed electronically. TurboTax products and services made up 35 percent of Intuit’s $4.2 billion in total revenues last year. Versions of TurboTax for individuals and small businesses range in price from free to $150.

(H&R Block, whose tax filing product H&R Block At Home competes with TurboTax, declined to discuss return-free filing with ProPublica. The company’s disclosure forms state that it also has lobbied on at least one bill related to return-free filing.)

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  • nobsartist

    Perhaps the government should use imminent domain laws and make intuits software free to the American taxpayer.

    • ralphkr

      Already free on the Internet although you have to pay for the state income tax program. I used Turbo before they were bought by Intuit and now use a competitor that you can either do your entire tax online or download the software (FREE unless you want to pay $7.95 for the deluxe version that does things such as find last years return and enter the info in this years for you to edit). I always download the software, do my taxes, printout the forms for my records, and file electronically and either pay automatically or get a refund deposited in my account in a few days. NO charge for software and no need to mail in the form and hope that the IRS shall eventually look at it. I believe TurboTax is only free for working online but does include free electronic filing which makes IRS happy (don’t have to pay clerks to key in info) and the filer happy because of faster refund.

  • montanabill

    Just a thought…the government has access to information on almost all of your sources of income, but…it has no idea what your deductions might be nor is it going to offer the kind of help TurboTax does, to find them. Sounds like a pre-filled form with just your income might be a substantial benefit to our money hungry government.

    • Lisztman

      If you sent in a 1040EZ last year, the government will assume your tax adjustments to be, essentially, the same. It’s easy enough for the instructions to say, UP TOP — if your life has changed substantially within the last year — had a kid, purchased a house, new job, moved to a different state, etc… — then start over and do your own filing.

      • montanabill

        I haven’t been able to use a 1040EZ since I was a teenage.

        • ralphkr

          Shucks, I have never been able to use 1040EZ because it did not exist until I was about 50. I can still remember filling out the 1040 when I had an income of under $1,500 (using many sheets of tablet paper to do various calculations because no computers or calculators in the 1940s) and owing the governments money.

    • ralphkr

      The free tax programs have the same series of questions for you to answer considering you life and pointing out possible deductions, etc. that Turbo-Tax has. My free tax program keeps nagging me about having forgotten to enter my SS earnings since I am well past 65 (I don’t get SS or Medicare but they think I should).

  • adler56

    Turbo tax advertises free federal filing then charges for it- hypocritical repugnants.

  • Mogens Holst

    To montanabill: It works in Denmark. You have full access to your tax folder and you can make all adjustments online. Take for example you commuting expenses – your 1099 equivalent will show where your work so the system will suggest the travel distance and you just enter the days worked and the system will calculate the deduction, all you have to do is approve or change, but if you change the amount you can be challenged.

    It actually works very well for the vast majority of taxpayers. The year the returns were ready for approval on March 1 and I had my refund as a direct deposit in my bank 2 days ago.

  • donbronkema1

    What infamous swine!

  • It works really well in France too. I never understood why taxes filing was so complicated in the US even when you have very simple tax returns. I think I just got the answer 🙁

  • whodatbob

    Beautiful scham to extract more taxes trom the low income tax from poor innocent tax payers. As those who are wealthy enough to hire a tax lawyer to find the loop holes pay less.
    Simplify the tax code! Put all tax payers on the same footing.

    • Lisztman

      I wouldn’t expect it to “extract more taxes from the …poor etc.” No scam here. Yes, it might increase the odds that the IRS actually gets a return from a given individual. Having said that, I’m 100% in agreement with your suggestion that the tax code be simplified. Get rid of all those fancy deductions, including the ones for corporations. How much did you make? Here’s your tax due.

      (P.S. Joe Sixpack, if he’s lucky, puts $50/month into a rainy-day fund, a day-of-deposit savings account at the local bank. The interest gets taxed as ordinary income. Joe Lawyer takes $400/month out of his paycheck and stashes it in an investment account. The dividends from that become long-term capital gains, and are taxed at a preferred 15%. Where is the justice in the current system?)

      • ralphkr

        At various times the Feds have had a welfare program for banks by not taxing a certain amount of interest paid or taxing it at long term cap gains rate and, yes, I happily took advantage of those programs as well as when there was a tax holiday for dividends up to a certain sum.

  • adriancrutch

    I received a $600 bush freebie that I wasn’t aware of! So the IRS has only been helpful. In 1099 instances I would have more trouble with FICA than with FIT. These companies probably “hire” more lobbyists than employees?

  • Mark Ginn

    Why am I not surprised?

  • Lisztman

    The opponents of Free-Return Filing, both from sources such as Intuit, and the comments below, seem to feel that it’s an all-or-nothing contest. In reality, I see that as “not at all”. Nowhere did anything say that one was REQUIRED to use the system. What it suggested is that the IRS could fill in the form for you. Using the same numbers that you use yourself.

    Now… MANY, myself included — have deductions such as “charitable contributions.” I have a first mortgage and a home-equity Line Of Credit — and right up top I have to answer the question “did you use the LOC to improve your home?” (Or, did I use it to finance two weeks in Vegas?) I have Schedule C income and deductions. All SORTS of stuff that, essentially, requires that I spend around six hours (the historical average) on some weekend in early April filling out my 1040.

    If an individual has multiple employers, it might get difficult. If an individual has “unreimbursed commuting expenses” then that individual is, by definition, a consultant, and has a complex 1040 (you may not deduct commuting costs to your regular place of employment).

    But there are millions upon millions of filers for whom the 1040EZ, or the short form, are the norm. They have income, FICA, perhaps Disability or 401K deductions. ALL already on the W-2, so the IRS already has all that stuff (except the dependents, which they have from last year). If you gained a new dependent, or became blind, you are allowed to alter the pre-filled form. What’s the difficulty here? A couple, renting an apartment, with three jobs between them and total household income of $38K, are likely NOT filling out the long-form 1040. They fill in their income, take the standard deduction, look up the tax due — and that’s it. And, sorry, there’s NO extra paperwork for the employer.

    For all those millions, the pre-filled IRS form is a no-brainer. So why would Intuit (or Block, or other lobbyists) object? Because if they rope in the 1040EZ user today, even with free filing, twelve years later, when the customer owns a house, s/he’s finished school, perhaps has a higher income — that company will already have a customer who is “trained” to use their software, and will now pay for the right to use it.

    And, of course, all those other tax advisors who collect a fee for filling out a 1040EZ? Well, they may have to stop bilking poor people out of a few bucks. No, it’s 100% honest labor, and they deserve to be paid if they’re doing it. But too many taxpayers don’t even realize how simple it is to fill in a 1040EZ on their own.

    • Yes Lisztman you can not deduct your car you drive to work but a corporation can fly a company jet anywhere in the world and deduct it from their income tax.

      • Lisztman

        Sad, ain’t it? FWIW — I had a decent job in Manhattan (NYC). For eight years I commuted 2.5 hours each way, every day. 15 car miles to the station, bridge toll, Amtrak, subway. But because I had only the one employer, commute costs were after-tax. So after “Tax Freedom Day” (what is it, somewhere in May?), I spent the next $12K (yes, 12 thousand) on merely getting to work, because, as my wife puts it — we fed the kids once so they expect it every day.

        Mr. Graves — well noted. Where’s the justice?

  • I’ve been happy with TurboTax since its creation because I’ve never been in a position to file a 1040EZ, but I don’t know if I trust the IRS to deliver a form in the best interest of the taxpayer. Also since many small employers and 1099 providers don’t efile their W-2’s and 1099’s, I’m concerned that a government focused on diminishing its own workforce would get all the paper-filed income statements into the system in time for the taxpayer to timely file this return-free document.

    • Lisztman

      I have used TurboTax in the past. I made two attempts to use it, and ran, both times, into very specific and time-consuming difficulties using it. So I don’t use it any more. At all.

      For a number of years I used a product from an outfit called Parsons Technology. A brilliantly-constructed piece of software. Then they got bought out by H&R Block. And Block killed Parsons. Leaving me back to a choice between TT and Block. I use the latter. It’s not bad. I wish I could turn off all the “helpful suggestions” — the same ones I’ve been looking at for years now. And I wish that, right up front, they’d offer a menu “describe the sorts of income and deductions you have”. Or look at last year’s return (It’s there, on my computer. They extracted data from it.) and realize that I don’t have foreign investments, depreciation allowances, off-shore income, alimony, and the like. All they have to do is ask if your income/investment profile has changed since last year — and work accordingly.

      But, meanwhile — why not trust the IRS? All it would be doing would be filling out the form for you, containing the info they already have. You do NOT have to sign it and return it. You are certainly free to fill out your own (I bet, for 1040EZ filers, they get the same answer). Are you suggesting the IRS will start adding employers and/or income you really didn’t have? No. Do a quick look at it. Yup. That’s my employer. Yup, that’s about what I got last year. Yup. Married, filing joint. Sign it. Done.