At a recent hearing before the Senate Appropriations Committee, IRS Commissioner Doug Shulman heard from senators that the agency ought to provide taxpayers with its own free online tax software.
Shulman was testifying about the IRS’s annual budget, but towards the end of the hearing, a pair of senators suggested the idea. “We can eliminate the middle man,” said Sen. Dick Durbin, D-Ill., according to U.S. News and World Report. “It may save taxpayers money.”
His fellow home state lawmaker, Sen. Mark Kirk, R-Ill., had first suggested the idea, and estimated that such a program would cost the IRS about $20 million to $30 million to create. “That an American doesn’t pay TurboTax, doesn’t pay H&R Block, simply logs onto the IRS Web site, fills out their taxes in an accurate, complete way in which the software is handling all of the complexity, and the amount of time spent complying with federal law drops like a rock,” he said.
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However, Shulman was apparently cool to the idea, responding, “I don’t think it’s that simple.”
Of course, the IRS already offers its Free File service, which it operates in partnership wih a group of tax software companies like Intuit, Block and 2nd Story Software, who are part of the Free File Alliance. In recent years, the IRS has lowered the eligibility requirements for Free File, allowing taxpayers with an adjusted gross income of $58,000 or less to qualify.
For those with even larger incomes, a couple of years ago the IRS introduced Free File Fillable Forms, which allows taxpayers to go online and fill out the forms directly. The Fillable Forms option, however, doesn’t include the interactive interview process found in most consumer tax software that takes users step-by-step through a return. The taxpayer has to know which forms to fill out and what information should go in them. The forms will do a few simple math calculations, but it won’t try to offer suggestions about how to handle your mortgage interest deductions, for example. A couple of tax seasons ago, I briefly tried out the Fillable Forms option and found it frustrating to use, so I ended up once again with TurboTax Online.
Still, it is surprising that Shulman would be lukewarm to the idea of developing such a system. After all, he recently described in at least two speeches his vision for a next-generation tax system that would allow taxpayers to go online and have their tax forms essentially filled out by the IRS. The system would use the information reports it had received from the 1099s, W-2s, and K-1s that third parties had already filed with the agency (see IRS Commissioner Proposes Tax Technology Overhaul and IRS Advances Technology for Spotting Tax Fraud).
However, in that system too, the IRS would still have a place for the commercial tax software vendors. “The vision is relatively straightforward,” Shulman said back in April. “The IRS would get all information returns from third parties (W-2s, 1099s, etc) before individual taxpayers filed their returns. Taxpayers or their professional return preparers could then access that information, via the Web, and download it into their returns, using commercial tax software. Taxpayers would then add any self-reported and supplemental information to their returns, and file the returns with us. We would embed this core third-party information into our pre-screening filters, and would immediately reject any return that did not match up with our records.”
Generally, the IRS has preferred to work with the commercial tax software industry on improving their products so it can increase tax compliance and reduce the volume of paper returns. CCH Small Firm Services president Jeff Gramlich, said, “There is no concern about them getting into the tax prep business.”
His company is one of the largest providers of tax prep processing services, and it was asked by the Senate Finance Committee recently to write a one-page white paper about what happens to the tax prep industry when tax legislation is delayed, as it was last December with the Bush tax cuts extension. He recalled getting a phone call from the IRS on February 11, just a few days before it was set to finally allow tax practitioners to file itemized tax returns and a number of delayed tax forms, urging him not to let all the tax forms be filed at the same time. The IRS was concerned that its systems might be overwhelmed by millions of pent-up tax returns.
Still, it’s not too big a leap to imagine a time when the agency might eventually provide its own tax software online, especially if it’s prodded by Congress to do so. The unpredictable efforts at tax simplification and tax reform in Congress might even veer off in this direction. When President Obama was campaigning for office in 2008, he had suggested that the IRS set up an online system that would allow taxpayers to file their taxes in five minutes. We’re still a long way off from that day, but clearly there is demand for a way to make the tax prep process less burdensome, for taxpayers and tax practitioners alike.
12 Comments
How about making the cost of your tax preparation an adjustment to income for everyone in lieu of supplying the software, which would be a nightmare for state returns.
Posted by: NiteOwlett | June 24, 2011 8:16 PM
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The government screws everything else up, so lets just trust them to monopolize the tax prep business as well.
Posted by: phazer99 | June 23, 2011 6:42 PM
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So a taxpayer would use the IRS software to prepare his/her Federal return and then buy commercial software or pay a professional preparer to prepare his/her state return(s), which typically would require input of the same information?
That sounds like a well thought out government solution!
Posted by: kc | June 23, 2011 3:22 PM
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If the IRS takes forever to update his own code and publications that include the late changes introduced by the congress year after year .. when its online prep tax software will be available to file my income tax every year? Maybe in March!!
Posted by: gbarret | June 23, 2011 2:32 PM
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This should be a no brainer. They make the laws, they enforce them, and they do the susequent audits. Why shouldn't they supply everyone the necessary software to prepare their return?
Saying they are busy or don't have the expertise might be very true, but that is not an excuse. Saying it would be to difficult for them is probably very true, but still no excuse.
They would have to job it out as they have to do with anything that requires expertise. So what is different about this?
It would help standardize preparation, it would let everyone electronically store their information and retrieve it, and it could have a future of streamlining examinations.
Posted by: Unknown | June 23, 2011 2:18 PM
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WTF? Don't they have enough to do. Clean up the IRS code, simplify the filing process and get your s... together IRS! This year the delays were just plain stupid, we have these situations every year, but it has never delayed filing.
Posted by: walkersky | June 23, 2011 2:09 PM
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Doesn't the IRS already have enough to do? Is this really going to save anybody money? I am all for not letting Congress waste any more time on this subject. Josh's response is pretty clear cut, if Congress won't prepare its own tax returns how can they expect the average taxpayer to do theirs.
Posted by: walkersky | June 23, 2011 1:57 PM
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This sounds amazing since the IRS cannot even accept an email. I can't wait to see how many billions of dollars will be spent on a program like this when we cannot even develop a budget in the required time frame.
I also imagine that like retirement plans and health care the legislature will assuredly have a different program to file and pay their taxes through than the American Taxpayers.
It is easy to make rules for someone else to follow and to not hold yourself accountable to those same standards.
Even Senator McCaskill from our Great state of Missouri failed to pay sales/use tax on the family airplane. I would not ride in it either if it caused me so much trouble ....like paying the taxes that were due.
Examples go on and on, but the professional tax preparers, software vendors and the TAX PAYERS are not the problems that are most pressing on the agenda.
We are bleeding billions on so many fronts, who is responsible for balancing the checkbook? I would say any good CPA could draft a a budget, produce a financial statement, and keep a cash flow in the black.
Single term limits, and a requirement that the benefits are no different than those available to the average taxpayer, would be a refreshing thought to consider.
Daily there are reports of where the IRS allows fraudulent refunds to go to prisoners, and such who are just toying with the system, for lack of something to do all day. I would say that a 100% penalty would be in order with interest from the IRS budget for failures of this magnitude.
There are many more things that need attention, than this matter.
How many of you want to go let a new revenue agent do your taxes, on their software, that will be 10 year out of date by the time it off the ground.
Maybe they can start working on this after all of the valid Homebuyer Tax Credits are paid in full.
Our people need to be back to work making things that have gone to oversea manufacturing. If someone expects us to buy those items, then we will have to have employment opportunities with which to have income to spend. Why not subsidize at home instead of dumping the money into black holes overseas. Sure international trade is imperative, but on a level field, and while taking care of your own first.
Posted by: faroncpa | June 23, 2011 1:52 PM
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So the idea is that IRS needs to re-create the wheel and offer free tax filing service? Hmmm. So Turbotax does not offer free software for simple returns already? Hmmm. And taxpayers just want a way to file tax returns without any advice? It sounds to me as though someone in congress needs to think before speeking.
Posted by: Ken S | June 23, 2011 12:55 PM
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Several years ago I said to a very high ranking member of the Senate Finance Committee, "If you really want to make the Internal Revenue Code simple, just take every member of the Senate Finance Committee and the House ways and Means Committee and make them prepare their own returns." The senator looked at my name tag and looked me right in the eye and replied, "Joel, you know that's never going to happen." You can't say any more that that.
Posted by: joeltaxpro | June 23, 2011 12:52 PM
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Congress, look into a mirror? Too busy sexting and being pretentious. Congress could just stop wasting money, saving taxpayers a whole lot more than tax preparers would ever dream of ever getting. We really do need another bovine flatulence study to confirm all the previous ones.
Posted by: EnrolledAgent | June 22, 2011 2:59 PM
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Maybe Congress should look in the mirror and take credit for the mess that we know as the Internal Revenue Code.
Bill McGovern
Posted by: BillMcGovern | June 22, 2011 8:31 AM
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