The IRS may soon be banned from creating a potentially cheaper alternative tax filing software thanks to Democrats’ support of a Republican bill.
One of the main concerns of the tax preparation industry — which includes companies like Intuit, the maker of TurboTax and Quickbooks — is the possibility of having to compete with the IRS should the agency develop its own electronic tax filing software. But if the so-called Taxpayer First Act (H.R. 1957) becomes law, the IRS would be permanently banned from offering taxpayers an alternative to Intuit products.
While Rep. Darin LaHood (R-Illinois) is the chief sponsor of H.R. 1957, Rep. Richard Neal (D-Massachusetts), chairman of the House Ways and Means Committee, is one of the original cosponsors. In fact, 18 of the 28 cosponsors are Democrats, according to Congress.gov. And ProPublica recently reported that a companion bill in the Senate is cosponsored by Senators Chuck Grassley (R-Iowa) and Ron Wyden (D-Oregon).
If the bill passes and becomes law, it would effectively give the for-profit tax preparation industry a monopoly on tax filing software, forever locking the IRS out of creating its own program. Such a program could endanger the profits of those companies, as filing a return directly with the IRS would likely be much simpler, given that American employers are required to send their workers’ W2 and 1099 forms to the IRS. Because the IRS already has Americans’ income information on file, filing a tax return directly through an IRS program would likely be much simpler than with Intuit, H&R Block, or any other company with its own tax filing software.
Currently, there’s an understanding between the federal government and the tax preparation industry in that the nearly 70% of Americans who make $66,000/year or less are offered free tax filing by the industry, in exchange for the IRS staying out of the tax preparation market. If H.R. 1957 passes, the status quo would become law, which is one of the two primary goals the tax preparation industry’s lobbyists have been attempting to accomplish for years.
The other primary goal of the for-profit tax filing lobby is to establish a law banning the IRS from sending completed tax returns to Americans, rather than Americans having to file their own taxes. Senator Elizabeth Warren (D-Massachusetts) has proposed a bill that would use salary information the IRS already has on file for American workers, and send them a completed return that Americans can either simply sign and send back, or allow Americans to file their own taxes if they choose to do so.
Sen. Warren’s office estimates that Americans spend an average of $200 each year to file their own taxes, and take an average of 13 hours to complete their own returns. While the tax industry lobby’s arguments against the bill are that the IRS won’t know which deductions Americans want to claim and that filing one’s own taxes amounts to a necessary financial checkup each year, a 2012 document Intuit filed with the Securities and Exchange Commission more plainly stated that return-free filing “may cause us to lose customers and revenue.”
Tom Cahill is a contributor for Grit Post who covers political and economic news. He lives in Bend, Oregon. Send him an email at tom DOT v DOT cahill AT gmail DOT com.