Congress Bans IRS Online Filing

A bipartisan bill will protect the tax preparation industry at the expense of the citizenry.

tax taxes pig piggybank dollar signs chalkboard
Photo by GotCredit under CC BY 2.0 license from pxhere.

An institution that has become best known for its inability to get anything done has managed to put aside partisan bickering to pass legislation that their constituency not only didn’t ask for but surely don’t want.

Just in time for Tax Day, the for-profit tax preparation industry is about to realize one of its long-sought goals. Congressional Democrats and Republicans are moving to permanently bar the IRS from creating a free electronic tax filing system.

Last week, the House Ways and Means Committee, led by Rep. Richard Neal, D-Mass., passed the Taxpayer First Act, a wide-ranging bill making several administrative changes to the IRS that is sponsored by Reps. John Lewis, D-Ga., and Mike Kelly, R-Pa.

In one of its provisions, the bill makes it illegal for the IRS to create its own online system of tax filing. Companies like Intuit, the maker of TurboTax, and H&R Block have lobbied for years to block the IRS from creating such a system. If the tax agency created its own program, which would be similar to programs other developed countries have, it would threaten the industry’s profits.

“This could be a disaster. It could be the final nail in the coffin of the idea of the IRS ever being able to create its own program,” said Mandi Matlock, a tax attorney who does work for the National Consumer Law Center.

Experts have long argued that the IRS has failed to make filing taxes as easy and cheap as it could be. In addition to a free system of online tax preparation and filing, the agency could provide people with pre-filled tax forms containing the salary data the agency already has, as ProPublica first reported on in 2013.

The Free File Alliance, a private industry group, says 70% of American taxpayers are eligible to file for free. Those taxpayers, who must make less than $66,000, have access to free tax software provided by the companies. But just 3% of eligible U.S. taxpayers actually use the free program each year. Critics of the program say that companies use it as a cross-marketing tool to upsell paid products, that they have deliberately underpromoted the free option and that it leaves consumer data open to privacy breaches.

The congressional move would codify the status quo. Under an existing memorandum of understanding with the industry group, the IRS pledges not create its own online filing system and, in exchange, the companies offer their free filing services to those below the income threshold.

ProPublica, “Congress Is About to Ban the Government From Offering Free Online Tax Filing. Thank TurboTax.”

While there is, generally speaking, a strong argument for keeping government agencies from competing with private industry I don’t see how it applies in this case. After all, the only reason people have to file taxes to begin with is to fund the government. Beyond that, one would think the IRS would have a fundamental interest in making it easy for people to simply and accurately file their taxes.

FILED UNDER: Bureaucracy, Congress, Economics and Business, Taxes, US Politics
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Daryl and his brother Darryl says:

    one would think the IRS would have a fundamental interest in making it easy for people to simply and accurately file their taxes.

    I file with Turbo Tax…the process is simple, accurate, and this year cost me an evening of my time and $119.
    I do not believe, for one minute, that the IRS is capable of reproducing what Intuit does.
    https://www.bloomberg.com/opinion/articles/2018-04-17/the-irs-computer-system-is-the-oldest-in-the-government

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  2. James Joyner says:

    @Daryl and his brother Darryl:

    I do not believe, for one minute, that the IRS is capable of reproducing what Intuit does.

    Why would it need to? Why not just license TurboTax?

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  3. Jen says:

    Yeah, I think I’m with @Daryl and his brother Darryl: on this–I cannot imagine the IRS being able to develop and successfully launch the complex software that would be required. It would likely be buggy as heck.

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  4. Hal_10000 says:

    I was outraged when I read this, but I’m not really clear on what the bill actually does. Everyone is just linking the ProPublica piece but, AFAICT, all the bill does is continue the “free file” program which uses commercial software . PP and others don’t like it because they think those companies are using the free software to try to upsell people on paid products. But it’s not “banning” anything so much as it’s continuing something.

    (Also agree w/ above: the IRS has been notorious for misinterpreting their own rules and holding the taxpayers responsible for their mess-ups.)

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  5. An Interested Party says:

    That’s a cute little trick…underfund and understaff a government agency and then when that agency develops a reputation for incompetence, scream, “See! The government can’t be trusted!” It’s just so much better to shell out money to all these private companies, when, theoretically, it could cost absolutely nothing to file your taxes…

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  6. Kit says:

    @Daryl and his brother Darryl:

    I do not believe, for one minute, that the IRS is capable of reproducing what Intuit does.

    And just what makes you think that the IRS would attempt that? An IRS site catering to the 70% of filers earning under $66k would likely serve them as well and, you know, for free. Save all the bells and whistles for tax payers with more complicated returns. And give the poorer citizens a break instead of letting them be preyed upon. Just a thought.

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  7. Dave Schuler says:

    The irony of this is that the computerized tax preparation industry shouldn’t exist at all. That would be the case with a reasonably provident Congress. Most people would just sign on to the IRS site as Kit notes above.

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  8. steve says:

    Well, now we know which industry is contributing heavily to both Democrats and Republicans. Bad move by the Dem controlled Congress.

    Steve

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  9. Teve says:

    The IRS already receives the vast majority of taxes electronically. creating a front-end for that system, at least for 1040EZ, would be trivially easy.

    I used to work for a very well-known national tax preparer and 80% of the hundreds of returns I prepared in my brief career could have been done at home by the average person with a simple front end, but the preparation industry wouldn’t get any money from that, and would also miss out on the opportunity to push their refund advances, which is a big chunk of where they make their income.

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  10. Andy says:

    Rent-seeking seems to be the last bastion of bipartisanship. Tax preparation is a $9 billion industry and most of it only exists because Congress made tax compliance complicated enough to require it. There’s nothing defensible about it.

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  11. DrDaveT says:

    @Teve:

    and would also miss out on the opportunity to push their payday loans, which is a big chunk of where they make their income.

    FTFY. “Refund anticipation loans” only get around usury laws by not having to count the fixed fee as part of the interest. Without that, the effective interest rates would make even the worst credit cards look like the Bedford Falls Building and Loan.

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  12. gVOR08 says:

    @An Interested Party:

    That’s a cute little trick…underfund and understaff a government agency and then when that agency develops a reputation for incompetence, scream, “See! The government can’t be trusted!”

    A pretty nice summary of Republican politics since Reagan.

    Long, long ago, in my youth, J. K. Galbraith noted that big unions, large farm organizations, consumer associations, and government can “countervail” the power of large corporations. Large farm groups have disappeared, consumer associations haven’t happened. Our wealthy and corporations have largely eliminated big unions (Clinton and the DLC may have been correct that they needed corporate money to survive, but going along with the neoliberals in destroying unions is the D’s biggest long term mistake). And our wealthy and corporate brethren are working hard on eliminating any power of the government to do anything but tax us proles to subsidize themselves. This rant being a segue to the comment thread on https://www.outsidethebeltway.com/taxing-the-very-rich/

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  13. Mister Bluster says:

    One of the joys of travelling this great land to ply my trade came at tax time. I got to learn about income tax laws in several states and how to file the realated forms.
    High tax, low tax, some tax, no tax (FL, TX).
    I did it all myself. Pre internet paper forms. Twice over the years I got letters from the IRS. They never contained the word “audit”. They just claimed that they could not find where I had accounted for some income or other that had been reported to them several years earlier. Usually on a 1099.
    I always keep copies of my returns. I still have 1040 from as far back as 1983.
    It was easy to make copies of the copies, draw BIG RED CIRCLES around the amounts they claimed they never saw and send them in. I never heard from them again.
    Several years after I retired I figured I should put all this expertise to good use and hire on as a professional tax preparer. Signed on with the competition to Around the Block, sailed through their classes and sat at a Walmart kiosk.
    The first question customers always asked was ” How much is it?”
    We didn’t know. It was never clear until all forms were filed and then we would gladly deduct it from their refund.
    Since I had used low or no cost internet tax filing in previous years I was surprised that some customers were willing to pay as much as $200 for a $2000 refund on state and federal filings.
    I had always figured that if you can read and write and add and subtract you could do your own filing on line for a lot less than we were charging.
    It got to where I would ask prospective customers if they had tried internet filing before they came to us. Many had not.
    I straight out told them to go home. Log on to the IRS site. Click on the Free Filing button and check it out. If they could not use it I told them to come back and we would be happy to take their money.
    I was bad for business. Very few returned.

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  14. Teve says:

    @DrDaveT: yep. Those tax prep companies are just parasites.

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  15. Franklin says:

    @An Interested Party:

    That’s a cute little trick…

    Shhh!!! If anybody knew that, the entire Republican party would crumble tomorrow.

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  16. An Interested Party says:

    Shhh!!! If anybody knew that, the entire Republican party would crumble tomorrow.

    Well that’s the thing, isn’t it? It’s not like it’s some big mystery…some people just choose to be oblivious or stupid or both…it must be a hell of a thing to support a political party that’s basically one big grift…of course, look who’s the head of that party…

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  17. Tyrell says:

    @Teve: A person at the local tax preparation company told me that next year the IRS will not accept any paper: returns or payments by checks. I don’t know if anyone else has heard this.
    I went into that store to pick up some state and federal individual forms. Forget that. They don’t carry paper forms anymore and said they couldn’t print them. I finally loaded the forms off my computer onto a thumb drive and took it down to the local public library to print copies. My printer went out last year and I am not going to buy a new one to use a few times a year.
    Paper documents are becoming a thing of the past.

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  18. DrDaveT says:

    @Tyrell:

    A person at the local tax preparation company told me that next year the IRS will not accept any paper

    Did they also tell you that next year Jesus is coming back?

    To be brief: this is not true. This person was lying to you. At best, what they meant was “next year my tax prep company will not prepare paper returns for you”. They get paid to file your return electronically; they do not get paid to print out pages for you to put in an envelope and mail to the IRS.

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  19. Just nutha ignint cracker says:

    Don’t got a dog in this fight as I’ve always done my own taxes. I don’t file online because my recollection is that in nearly all of the situations where identity theft has resulted in a fraudulent return being filed, the common factor was having filed online. I have free credit/fraud reporting for life because I’ve been in two of the giant phishing scams that struck credit card companies/retailers, so my choice to not file on line makes sense to me. I do accept that ripping off the IRS by filing as a false me is basically a victimless crime, but I still believe that we should do our part to prevent tax fraud. (I may be the only person who does, though.)

    While I was in Korea, I never filed my taxes as my employers did it for me, but late in my stay, the college I was at decided that it was tired of/overburdened by the need of filing for some 150 foreign teachers and told us how to do our own–go to the website, enter our Alien ID number, and click the green box unless we had other write offs, taxes that could be deducted, or such, at which point we could make an appointment with the school’s bookkeepers for assistance in adding those write offs.

    If Korea can do this, we should be able to get at least close. My big complaint is that it is becoming harder each year to find instructions for how to mail one’s taxes in. Also this year’s form created some cognitive dissonance for me because of (admittedly needed) changes in capital gains recording.

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  20. Kathy says:

    Can’t someone create a free, open source online tax filing program or app?

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  21. de stijl says:

    @gVOR08:

    Large farm groups have disappeared…

    Local farm groups got co-opted by the Chamber of Commerce naturally. Large farm groups like the Farm Bureau gladly slid into the Rs laps in the early 80’s and haven’t looked back.

    The only remnant of late 19th / early 20th century US farmer economic communalism is a few farmer’s co-op stores in some rural mid-west towns.

    That branch of progressivism died.

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  22. de stijl says:

    @Kathy:

    Can’t someone create a free, open source online tax filing program or app?

    Probably for folks who file 1040EZ, but how to monetize? Someone could, but why?

    Ads served once a year to people who will ignore them don’t sell for much.

    The TurboTax (and competitors) model works because it’s fee-based.

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  23. Kit says:

    @Kathy:

    Can’t someone create a free, open source online tax filing program or app?

    As Teve says, creating something would be easy. The two areas that would be more difficult would be security and advertising. You might well find some software that fits the bill right now, but would you trust it? Is the code secure? Is the app an outright scam?

    And to really do any good, the IRS itself would have to promote the app/site, otherwise low-information filers simply will not find it.

    But you might be on to a great idea: a volunteer effort that could be promoted by the IRS without it running afoul of this new law.

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  24. Kathy says:

    @de stijl:

    Probably for folks who file 1040EZ, but how to monetize?

    I must be really old-fashioned, because when I thought “free” I meant “free.”

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  25. Just nutha ignint cracker says:

    @Kathy: And how would one go about monetizing a free open source online tax preparation program or app? It’s still about the Benjamins–no matter how much we’d like to believe it’s not.

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  26. Kathy says:

    @Kit:

    You might well find some software that fits the bill right now, but would you trust it? Is the code secure? Is the app an outright scam?

    That’s a good point.

    But, with all the news about this or that bank and credit card company and other types of company being hacked all the time, how do you know your professional, fee-based tax prep software is safe?

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  27. Monala says:

    @Kit: The IRS already oversees a volunteer tax program, and has for several decades: https://www.irs.gov/individuals/free-tax-return-preparation-for-you-by-volunteers

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  28. de stijl says:

    @Kathy:

    I thought “free” I meant “free.”

    There is no “free” anything.

    And with anything on-line and especially in social media remember that you are not the customer, but the asset.

    Amazon, Apple, Google and Facebook (and the rest) see you as a commodity.

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  29. Kit says:

    @Kathy:

    But, with all the news about this or that bank and credit card company and other types of company being hacked all the time, how do you know your professional, fee-based tax prep software is safe?

    The quoted article started that the professional software “leaves consumer data open to privacy breaches.” Unsure if that was only for the free version. But at least professional software has an interest in security–a version found online might well have the opposite interest.

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  30. de stijl says:

    Unless the “free” app also seamlessly imports your Form W-2 (and / or related taxable income info), Turbotax wins.

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  31. Matt says:

    @Daryl and his brother Darryl: What I don’t get is this sentence.

    Most of it is in the Assembly programming language, which the IRS itself has described as “antiquated” and “inflexible.”

    Assembly is used heavily in every single computer system. It’s not “antiquated” or “inflexible”. I have no idea what their point was with that but next quote might be important.

    Worse, the number of programmers who can understand and maintain the code behind the Individual Master File (IMF) dwindles with every passing year.

    I personally know several people who program in various versions of assembly (hardware based differences) it’s not disappearing as a skill… So the only thing I can think is that whoever wrote the code did a really shitty job with it and now a dwindling number of people can figure out WTF the spaghetti and/or lasagna means….

    So it seems starting fresh while following modern coding conventions would do wonders to fix the problem..

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  32. Andre Kenji de Sousa says:

    Brazil has online filing of income taxes since, like, 1991(At the time it was used floppy disks instead of online). Brazil is not exactly the type of country that you think when you think about streamlined bureaucracy.

    That’s not rocket science. What Intuit and people in Congress are doing is atrocious. There is no excuse for that. An online filling by the IRS would save tax and money from everyone, that’s rent-seeking of the worst sort.

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  33. de stijl says:

    I’m a freelancer who works on projects in multiple US states and countries. My person tells me what she needs to see and what she needs needs copies of. She’s awesome! Her fee is very well earned.

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  34. de stijl says:

    Assembly is used heavily in every single computer system. It’s not “antiquated” or “inflexible”.

    Assembly is like Latin or Greek. It’s not antiquated it’s proto.

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  35. Matt says:

    @de stijl: I get where you’re going with that but most people will probably think something along the lines of “latin is useless no one speaks it so assembly must be useless”…

    For those that don’t understand. Assembly is a low level programming language that sits one abstract above machine code. You can directly manipulate the hardware features in assembly. That is why the code itself is hardware dependent.

    People tend to be more familiar with high level programming languages like C++ which as code is further away from machine language and much easier for your average person to understand. It’s generally portable across hardware via different compilers.

    Personally I struggled with assembly so I moved to other areas of education.

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  36. de stijl says:

    @Matt:

    C++ is making a comeback per my colleagues. (As a general rule I write the embedded SQL)

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  37. An Interested Party says:

    Oh my…look at this exchange between Auntie and the boss of the IRS…

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  38. DrDaveT says:

    @Matt:

    Assembly is used heavily in every single computer system.

    As stated, that’s a bit misleading. Every processor and operating system has its own assembly language, which (as someone pointed out upthread) is one step removed from machine language instructions in hex. Assembly is totally processor-dependent; it’s different for every type of machine, and it’s not portable from one machine to another.

    The IRS Master File runs on ancient mainframes in Martinsburg, WV. There are also processing centers in Memphis and Detroit. The last I heard, the computers were mostly IBM z/196 machines, with some Unisys Dorado machines. People who can write complex code in those versions of assembly are fairly scarce.

    There have been recurring “tax systems modernization” projects to upgrade to more modern systems; none have fully succeeded. The shortfalls are not entirely the IRS’s fault — it helps (hurts?) that Congress hates the IRS, loves to screw with their budget, and loves to kill 5-year projects after 2 years because “you haven’t shown any progress yet”. Plus, the legacy systems have to keep running 24/7 during the upgrade, because that’s the only way the IRS can keep up with the workload.

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  39. grumpy realist says:

    The problems I see are a) security b) having to grandfather in old systems c) having to keep the whole thing going 24/7 while you change over to the new system d) upgrades. Each one of those would be a bitch in itself, but all four? No wonder we bumble along with the overly complex system we have….

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  40. Matt says:

    @DrDaveT:
    Yeah if you take that one sentence completely out of context it could be taken as a bit misleading. That’s why there was over a paragraph of more sentences in that post. I’m the one who pointed out that hardware has it’s own assembly language as a result of assembly being one abstract above machine code.

    My point was and still is that assembly isn’t “antiquated” and “inflexible” as stated in the article. If the reporter had spent a little time to research the subject they might of said something better than just calling all assembly “antiquated” and “inflexible”. It just annoys me when reporters write an article on a subject and it shows in their work that they don’t really know what they are writing about.

    I kind of find it funny you are calling the IBM z/196 machines “ancient”. I have gaming computers that play modern games that have CPUs from as far back as 2007. AKA older than the z/196 design.

    @de stijl: Yeah it’s used in some surprising places these days. I finally dove into a personal project that will use Arduino and was surprised to see they use C++ in the sketches.

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