Expanded IRS free-file system one step closer in Dems’ bill

[Hydrogen]

WASHINGTON (AP) — The flagship climate change and health care bill passed by Democrats and soon to be signed by President Joe Biden will bring U.S. taxpayers one step closer to a government-operated electronic free-file tax return system.

It’s something lawmakers and advocates have been seeking for years. For many Americans, it’s frustrating that beyond having to pay sometimes hefty tax bills, they also have to shell out additional money for tax preparation programs or preparers because of an increasingly complex U.S. tax system.

“It’s definitely something we should do, and when the IRS is adequately resourced, it’s something that will happen,” said Treasury Secretary Janet Yellen at a June Senate Finance Committee hearing.

And now that the IRS is set to receive nearly $80 billion through the so-called “Inflation Reduction Act,” the agency has the means to develop new systems to help Americans pay their taxes. The legislation passed Congress on Friday.

Several hurdles stand in the way. Even in a best-case scenario, it will likely take years to get a new, free system up and running. There’s also pushback from commercial tax preparation companies, which question whether Americans want the IRS to prepare their taxes.

Perhaps this biggest hurdle is an agreement between the IRS and some commercial tax preparation companies, known as the Free File Alliance, which prevents the federal agency from creating its own free tax return filing system. In short, the IRS agreed not create its own filing system if companies would instead provide free services to taxpayers making $73,000 or less.

That 16-year provision within the agreement was formally nixed in 2019, but tax experts and government reports say the program’s existence is largely responsible for the IRS not pursuing its own electronic free file system.

The program has been marred with controversy, with commercial firms misrepresenting their services and low taxpayer participation rates.

The Government Accountability Office in April reported that while 70% of taxpayers were eligible for services through the Free File Alliance, only 3% of taxpayers actually use the service. The watchdog recommended the IRS find new free filing options before the Alliance expires in October 2023.

With the funding in the bill, the IRS has an opportunity to create a new system.

Included is a provision that allots $15 million to the IRS to make plans for a free direct e-file tax return system. Those plans would have to be developed within nine months and would include cost estimates for creating and administering a system. They would also require public input.

There are also legislative attempts to move this effort along.

Sen. Elizabeth Warren, D-Mass., in July resubmitted a bill called the Tax Filing Simplification Act that would require the IRS to create its own free online tax filing service and move away from its partnership with private online tax preparation companies.

“I’ve been pushing for a free tax filing system for years, and now the IRS is on the verge of having significant funding to modernize its IT systems, which means it’s time to develop simplified filing tools laid out in my Tax Filing Simplification Act,” Warren told The Associated Press.

“Americans spend too much time and money to file their taxes, and the IRS should adopt these proposals to help millions of Americans file taxes and claim refunds.”

At her Finance Committee appearance, Yellen called for a new system.

“There’s no reason in the world that a modern economy shouldn’t have a system that makes it easy for such a large group of taxpayers to file their returns,” she said.

Vanessa Williamson, a senior fellow at the Urban-Brookings Tax Policy Center, said “if the IRS moves forward with a free product, it could save lower-income families the money they used to give to H&R Block or TurboTax.”

“Tax prep companies are notorious for tricking tax filers into paying for services they should be getting for free,” Williamson said, “so an IRS free file service would be a very welcome step that would save Americans money.”

In 2019, ProPublica wrote about Intuit’s TurboTax and H&R Block Inc.’s efforts to mislead taxpayers away from the federally supported free services for which they qualified. And in May, New York Attorney General Letitia James secured a $141 million settlement with Mountain View, California-based Intuit Inc., which had to pay restitution to some taxpayers.

Intuit withdrew from the Alliance in July 2021, stating in a blog post that the company could provide its benefits without the Free File Alliance’s limitations. H&R Block withdrew from the partnership in 2020.

“Most Americans don’t want the tax collector to also serve as the tax preparer,” said Derrick L. Plummer, a spokesman for Intuit.

“The IRS already has a core mission that it needs to focus on, and creating a new system would cost billions of taxpayer dollars and jeopardize the financial freedom of millions more,” he said. A spokesperson for H&R Block did not respond to an Associated Press request for comment.

Ideas for what a government run free-file program might look like are already being studied.

Bruce Sacerdote, a Dartmouth economist, has examined systems in other countries in which taxpayers don’t have to enter much data on their electronic forms because the government has already done so.

“The IRS has tremendous amounts of information on wages and dividends,” he said, adding that a government-supported tax filing system “could be a wonderful thing.”

Such systems are used in Germany, Japan and other Organization for Economic Cooperation and Development countries that collaborate to develop policies that promote economic growth.

“As a taxpayer, there could be a great benefit to pre-population,” he said. “Filing taxes is enormously time-consuming. Given all the information the IRS has on taxpayers, they could simply send you a completed return.”

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This story was first published on August 13, 2022. In it, The Associated Press reported that an agreement with the Free File Alliance and the IRS prevents the agency from creating its own electronic free-file tax return system. The story was updated on August 15, 2022, to make clear that while the 16-year provision within the agreement was formally nixed in 2019, tax experts and government reports say the Free File Alliance program’s existence is largely responsible for the IRS not pursuing its own electronic free file system.




https://apnews.com/article/irs-free-file-system-expansion-one-step-closer-democrats-b2c39db83e4a95f1d1cd1aa488495256

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It has been claimed that the US tax code is more than 60,000 pages long.  

The current IRS system was developed in the 1950s - 1960s and is built upon aging legacy code and hardware which may not be maintainable.

The last time the US federal government attempted to modernize its systems was after the affordable care act was passed in Obama's 1st term. A new website was built to allow new healthcare signups to apply for aid over the internet. End result, the website ending up costing in excess of more than $1 billion dollars and contained may bugs which persisted for months after the website was rolled out.

Now it seems the current administration is devoting funds and manpower towards the task of modernizing the aging IRS system. If a healthcare application website for obamacare costed taxpayers in excess of $1 billion. i can't imagine how much modernizing the IRS system will cost. It is possible that the project will never be completed or built to satisfaction. Given the known length and complexities of the US tax code. And the existing legacy code not being the most portable.

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[The Sceptical Chymist]

Now it seems the current administration is devoting funds and manpower towards the task of modernizing the aging IRS system.

That shouldn't be surprising at all, given that the US is headed toward bankruptcy after decades of kicking the can down the road with respect to the debt it carries and all of the boneheaded decisions that were made since the banking/housing crisis of 2008.

They're hiring lots of new IRS agents (that's what I've heard), which tells me that they're either going to ramp up enforcement or increase their surveillance of US citizens--or both.  The problem is that people who live in the US are already taxed to death, and on top of that prices of pretty much everything are skyrocketing. 

The government needs to seriously trim the fat instead of bleeding its citizens, which I consider a legal form of robbery and I know I'm not alone.  There's simply too much government and too much spending.  But do you really think any of that's going to change with a democrat in office?

[jackg]

The tax laws of the UK are over 16000 pages long and yet those seem to be handled quite well by both the authorities and people.

Employers may deal with filing tax returns for their workers - to an extent - but this is information the government already has afaik. A long criticism of the US has been this same transparency has been offered to their citizens but they're still expected to file their own tax returns too and make the figures match up to what the irs have.

If the IRS expect it to cost so much to build a system of their own, why don't they just buy a company that can already do the accountancy and go from there (or get banks to do it since they'll have a lot of the information already too).

[Zlantann]

It has been claimed that the US tax code is more than 60,000 pages long.  

The current IRS system was developed in the 1950s - 1960s and is built upon aging legacy code and hardware which may not be maintainable.

The last time the US federal government attempted to modernize its systems was after the affordable care act was passed in Obama's 1st term. A new website was built to allow new healthcare signups to apply for aid over the internet. End result, the website ending up costing in excess of more than $1 billion dollars and contained may bugs which persisted for months after the website was rolled out.

Now it seems the current administration is devoting funds and manpower towards the task of modernizing the aging IRS system. If a healthcare application website for obamacare costed taxpayers in excess of $1 billion. i can't imagine how much modernizing the IRS system will cost. It is possible that the project will never be completed or built to satisfaction. Given the known length and complexities of the US tax code. And the existing legacy code not being the most portable.

Before now my country had no digital database of all its citizens. Everything about its population was analog,using the data collected from census. Few years ago the government decided to digitalize the entire population system and ensuring that everybody has a personal identification number. This process is costing my country a whole lot of money. But the truth is that it is worth the cost because financial and other transaction have become easy and smooth because of the personal identification number. Criminal activities now have reduced because of the existence of an identity data base. If the US government is sure that the country really needs to modernize its systems and the cost is worth it, then it is a good decision. But they most ensure that a sound analysis of the merits and demerits of this modernization process have be carried out before approval. And the project should not be abandoned. At the onset my countries digitalization process there were some technical problems, but gradually it was resolved. And the services of the agency incharge keeps improving. The US might face some challenges on the process of the modernization of the IRS system but it would definitely be resolved. I am sure that the modernizing the IRS would make the system more effective and efficient because it would be redesigned based on current realities.    

[stompix]

It has been claimed that the US tax code is more than 60,000 pages long.  

Claimed!
https://slate.com/news-and-politics/2014/04/how-long-is-the-tax-code-it-is-far-shorter-than-70000-pages.html

The tax laws of the UK are over 16000 pages long and yet those seem to be handled quite well by both the authorities and people.

When communism fell we got our first Fiscal and Tax code, it was roughly 400 pages long, it was so easy to understand for everybody, it was so simple, and the results were marvelous!!! Nobody paid a dime, nobody paid taxes, only the few who worked with legal contracts had the taxes stopped at the employer level, VAT was a joke and receipts were the punchlines.
It was so badly written that all you had to do to run a business was to bankrupt it, then get all sorts of debt since by those stupid laws nobody could file a new claim for debt while you were bankrupt and after 5 years of not pursuing legal action, you would get all your debts erased.
Was there a surprise when large commerce chain stores tried to start a business here nobody, but nobody was willing to give them merchandise without paying upfront, well it was for them.

Back to what the US is doing is normal, it's about damn time you put all the resources to use, I still can't believe how far behind the country is when it comes to payments and money transfers, and don't even get me started on those checks!

Can you imagine how hard is to have an online tax form where you can just click on a button that says personal details unchanged and you don't have to complete again name your wife's name, your address, your year of birth and if your only income comes from monthly wage you don't have to fill anything it because it's already in the system filled by your employer? Same for state pensions?
Whenever I head IRS forms I can only think of Homer Simpson:

Marge, how many kids do we have? Oh, no time to count. I'll just estimate- uh, nine

[Gyfts]

Interesting to see democrats on board with the "modernizing" of the IRS -- this is contemporaneous to the inflation reduction act allowing the IRS to hire 87,000 new agents. These agents are alleged to be there to target the rich, but we all know they'll be knocking down the doors of middle income Americans who commit the crime of not paying taxes for a yard sale. The IRS put up some job descriptions which included responsibilities of carrying a firearm and using deadly force if necessary.

I do not accept the premise of "modernization" to be anything that would be beneficial to most Americans. Modernization is what the government claims -- what's it in actuality? Is it really a step closer digital filings?

[Sithara007]

Now it seems the current administration is devoting funds and manpower towards the task of modernizing the aging IRS system.

That shouldn't be surprising at all, given that the US is headed toward bankruptcy after decades of kicking the can down the road with respect to the debt it carries and all of the boneheaded decisions that were made since the banking/housing crisis of 2008.

They're hiring lots of new IRS agents (that's what I've heard), which tells me that they're either going to ramp up enforcement or increase their surveillance of US citizens--or both.  The problem is that people who live in the US are already taxed to death, and on top of that prices of pretty much everything are skyrocketing. 

The government needs to seriously trim the fat instead of bleeding its citizens, which I consider a legal form of robbery and I know I'm not alone.  There's simply too much government and too much spending.  But do you really think any of that's going to change with a democrat in office?

It is a fact that the United States government can spend a lot more when compared to the other countries. They can easily borrow $1 trillion or $2 trillion by selling the treasury bonds. The demand is so high, that the interest rates are in the vicinity of 1% to 1.5% per year. These are the advantages when the national currency is the trade and reserve currency of the world. The other countries don't have this luxury. If they want to take loans, they need to pay much higher interest rates. And the other national currencies are in much worse condition when compared to the USD.

[bittraffic]

If "modernizing" the IRS means people can track where their taxes go, taxpayers may just be willing to submit without hesitation. The fact that the money goes to the weapons sent to Ukraine just does not make sense while we suffer the high prices of everything.

87,000 IRS agents knocking on your doors and will interrogate you all the way to know whether you cheated or not is like a dystopian age.

[Silberman]

If the IRS expect it to cost so much to build a system of their own, why don't they just buy a company that can already do the accountancy and go from there (or get banks to do it since they'll have a lot of the information already too).

That makes too much sense, how else will they get a cut of the action if the project is not on the billions of dollars? How else will they give the impression they are working hard if half or more of the work has been done already?

That is not how it is done, to begin with they need to create a commission full of politicians which do not know anything about the topic and discuss for months how they will make this a reality, then create a second commission because they could not agree on the color of the interface, then finally green light will be given to the project, it will take twice as long and cost three times more than what it was projected while having less than half of the features, then they will declare this a success while a new commission is created to fix the bugs and mistakes incurred by the previous commissions.