Congress won’t help simplify taxes
The closer you get to April 15, the more you might wonder why, exactly, we are paying someone to help us pay money to the federal government.
Even if you’re getting a tax refund, you might wonder why you have to take on this extra cost of buying tax software.
If Americans have a do-ityourself spirit, why are we spending $40 or $50 a pop or more on software to fulfill a federal obligation to file a tax return by April 15?
Shouldn’t the federal government simplify the process for those who do their own taxes?
After all, we’ve moved far away from the days when most of us filled out paper returns and stuck them in the mail. About 90% of individuals electronically file their tax returns.
Good luck with that taxpayer-friendly dream.
This month, Congress moved closer to making it illegal for the Internal Revenue Service to create its own online system of tax filing.
The measure is tucked into the Taxpayer First Act, a bill supported by both Democrats and Republicans.
The House passed the bill – aimed at modernizing the IRS – on Tuesday by voice vote.
The vote was one week after the House Ways and Means Committee advanced the bill.
Among other things, the legislation tackles identity theft protection and taxpayer rights during the enforcement process.
It’s unknown when the bill would be considered by the Senate.
According to a ProPublica report on Tuesday, companies including Intuit, the maker of TurboTax, and H&R Block have lobbied for years to block the IRS from creating an expansive, free, consumerfriendly online tax filing system.
And it has worked – Congress now is formally siding with them.
What we have now instead is a little-used, limited system called Free
File at www.irs.gov. Make no mistake, Free File can work for some people who know how to use it.
Free, easy-to-use software for those with incomes below $66,000 is available at www.irs.gov. Free state return options are available too. But this isn’t open to everyone.
70% could use Free File
The National Taxpayer Advocate, an independent office within the IRS, has criticized the system, noting that Free File, which comprises different software programs provided by private tax-preparation companies, is underutilized and the IRS has failed to set standards for improvement.
The IRS rolled out a news release in early March titled “Free File is Growing.” The release noted that more than 55 million returns have been completed via Free File – get this, that’s since the program, now in its 17th year, began.
While 70% of taxpayers could qualify to use Free File, we’re looking at a tiny fraction of people who use it.
The National Taxpayer Advocate’s 2018 report to Congress noted that only about 2.5 million people filed returns using Free File software in fiscal year 2018.
“The IRS is devoting minimal resources to oversight and testing of this program to understand why taxpayers aren’t using it and how the services offered could be improved,” the report stated.
Such a lack of oversight “can further erode taxpayers’ trust in fair tax administration,” the report added.
“Electronic filing has increased greatly since 2002, but the goals of the Free File program have stagnated and use of the program has steadily declined,” the taxpayer advocate wrote.
“In tax year 2016, only 2.3% of eligible taxpayers used Free File software, and only 0.20% of eligible taxpayers used Free File Fillable Forms,” according to the report.
No money is put toward marketing the program. The IRS no longer conducts satisfaction surveys, which the agency claims is because of budget constraints, the taxpayer advocate said.
National Consumer Law Center Of Counsel Mandi Matlock said many taxpayers don’t even know about the Free File program.
And many who know about it often are discouraged by the limitations and complex rules.
Matlock said users must contend with an online maze to figure out which alliance member’s criteria they can meet.
Some software programs on the platform, for example, apply only to people of a certain age or income.
The IRS site provides a form that you’d fill out that includes your age, income, state of residence and other information to help you find the software that could be available to you.
Age restrictions
According to the IRS, the online tool is designed to help match the user with the available software products offered by private companies, including firms such as FreeTaxReturns.com, H&R Block’s Free File, or TaxAct Free File. You’d go to www.irs.gov to get started.
“The choices are limited now,” Matlock said. “And that suits the industry just fine.”
For example, according to the National Taxpayer Advocate’s report, age restrictions sharply curtail the number of Free File options available to taxpayers who are 60 and older.
Only three of the 12 Free File providers offer services to taxpayers of all ages, the report stated, and five have age limitations that won’t cover someone who is 60 or older.
The IRS notes that brandname software is available through Free File for workers, families with children, firsttime filers, seniors and members of the military who meet the income requirements.
It should be easy
Ideally, it’s best to make filing taxes as cheap and easy as possible to encourage compliance, not discourage it. Some consumer watchdogs say that the IRS should even be able to provide many people with prefilled tax forms containing salary data that the IRS already has in place.
Why can’t we see a better, free online tax filing system?
Would people really stop going to professionals, if there were a more expansive, freeonline system? Personally, I doubt it. People paid to have their taxes done by someone else when we all did it by paper.
But the notion of the IRS one day being able to create its own program goes out the window, Matlock said, as part of a wideranging bill in Congress that would make several changes to the IRS.
“Why take the possibility away from them?” Matlock said. “The potential is there but we are looking at a bill that will cut it off at the knees.”
Other countries, she said, have made it easier for people to file their taxes via free electronic systems.
Sadly, the free online filing issue is viewed as a Trojan horse or sleeper provision that is tucked into the Taxpayer First Act, which has some provisions that would help taxpayers, Matlock said.
The bill, for example, restricts the IRS from turning over some past due tax bills to private debt collectors if the person cannot afford to cover their basic living expenses. Consumer advocates favor such changes.
The National Taxpayer Advocate Nina Olson stated in her report that the IRS’s effort to expand its private debt collection program continues to burden taxpayers who are likely experiencing economic hardship.
“It is true that taxes are the ‘lifeblood of government,’ but as I’ve written elsewhere, it is the taxpayers of the United States who pay that lifeblood,” Olson wrote.
“The choices are limited now. And that suits the industry just fine.” Mandi Matlock, National Consumer Law Center