[Clips] Letting the IRS Do Your Taxes for You
R.A. Hettinga
rah at shipwright.com
Fri Apr 14 08:07:20 PDT 2006
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Date: Fri, 14 Apr 2006 10:34:31 -0400
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From: "R.A. Hettinga" <rah at shipwright.com>
Subject: [Clips] Letting the IRS Do Your Taxes for You
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<http://online.wsj.com/article_print/SB114489444487224827.html>
The Wall Street Journal
THE AUTOMATIC 1040
The IRS might be able to fill out your return for you, based on the
information it gets from other parties and past data it has on file, such
as:
* Your W-2 form, which includes all your wages and withheld taxes.
* Your 1099 forms, which include dividends and interest from investments,
bank accounts and other sources, as well as outside income.
* Your 1098 form, which reports mortgage interest paid.
* Your previous tax return, which includes marital status and number of
dependents.
Letting the IRS Do Your Taxes for You
Agency Has Enough Data
To Fill Out Many Returns;
Tax Preparers Resist Proposal
By ROBERT GUY MATTHEWS
April 13, 2006; Page D1
Imagine that filing your tax return was as simple as receiving a completed
form from the Internal Revenue Service, signing it, then waiting for a
refund or writing a check.
It isn't so far-fetched. For many of the taxpayers scrambling to meet next
week's filing deadline, the IRS already has most of the data it needs on
file.
Since employers and banks and other financial institutions send information
on earnings, interest income, dividends and mortgage interest directly to
the agency, some academics and economists say the IRS should go ahead and
perform the role of tax preparer -- and save many people a significant
amount of time and money. A number of tax-preparation companies dispute the
idea's validity and are fighting against it, as is the Bush administration,
which has also expressed concern about the cost of such a program.
Last year, California launched a pilot program in which it filled out
state-tax returns for about 11,500 residents. It plans to duplicate the
program this year for 2005 tax returns.
Taking the idea national would obviously be more costly and complicated,
and nobody is saying that the IRS could fill out the 130 million returns
filed every year. Rather, proponents say, the government should focus on
people with the simplest returns, such as single filers who don't itemize
and haven't had a change in jobs or in the number of dependents from the
previous year. The IRS, in those cases, would essentially plug in the
numbers -- such as wages, annual interest from checking accounts, and
dividends -- that it gets from employers, banks and other sources, and
tabulate the results. The taxpayers would get their IRS-calculated returns
in the mail and either agree with the result or redo it themselves, perhaps
with the help of a commercial tax preparer.
"The idea is to reduce the burden on taxpayers," says Joseph Bankman, a
professor of law and business at Stanford Law School.
As appealing as the idea may sound, taxpayers shouldn't expect any such
change soon, due to a host of technical and political challenges. "This is
something that sounds pretty easy and obvious on the surface," says Charles
Rossotti, who studied the issue when he was IRS commissioner from 1997 to
2002. "But there are some very significant practical problems that rule it
out."
For one thing, he says, the IRS doesn't currently have the manpower or
computer power to quickly handle and tabulate the reams of financial
information from employers, banks and brokers in a timely way. That means
potential refunds could be delayed.
For example, individual taxpayers usually get W-2 forms, on which employers
report wages and withheld taxes, in January, but the IRS doesn't get the
forms until February. Similarly, taxpayers generally can get their 1099
information from financial institutions as early as January, but the IRS
often gets 1099s as late as August.
Even for the simplest of returns, documents from employers, banks and other
financial institutions would have to arrive at the IRS well before the end
of tax season around April 15.
Mr. Bankman says the technical hurdles aren't insurmountable. Two
economists, Peter Orszag of the Brookings Institution, a Washington, D.C.,
think tank, and Austan Goolsbee, a University of Chicago economics
professor, are studying how to make it easier for the government to prepare
tax returns by using information technology. They plan to publish their
findings later this year as part of the Brookings-affiliated Hamilton
Project, which aims to develop and promote new economic-policy ideas.
The California pilot project, called "Ready Return," cost about $211,000 to
run last year, and involved returns for only 11,500 people. Any federal
experiment is sure to cost millions of dollars. IRS Commissioner Mark
Everson says he'd rather spend any extra money on hiring more auditors and
investigators to beef up enforcement. He also says that if the IRS missed
some taxpayer income, there wouldn't be any incentive for the individual to
supply the information. "I think it leads to the thinking 'If government
already fills out some of my tax return, why should I fill out additional
lines?' " says Mr. Everson.
Mr. Everson's boss, Treasury Secretary John Snow, also strongly opposes IRS
involvement in tax preparation, which he says would be a conflict of
interest. "We aren't tax-preparation people," he told Congress earlier this
month. "We're not software-development people. There is a private market
out there that does that and does it well."
Commercial tax preparers, worried they would lose business if the IRS moves
starts filling out tax returns, also are determined to block the idea. They
argue that the government doesn't have an incentive to make sure taxpayers
get every tax break to which they're legally entitled.
"The issue is whether it's cost-effective for the tax system and good for
taxpayers," says Linda McDougall, a spokeswoman for H&R Block Inc., the
nation's largest tax preparer.
Intuit Inc., maker of the popular software TurboTax, has vigorously fought
California's pilot program. Along with H&R Block, it successfully sued to
stop a similar program from going into effect in the state in 1999.
Steve Westly, chief financial officer and controller for California, says
that this year's program might be derailed as well -- largely because of
lobbying by the commercial tax preparers. State legislators are currently
considering competing bills; one would torpedo the program, the other would
expand it. Nevertheless, Mr. Westly is moving forward with the program,
which will be offered to 50,000 taxpayers. To be eligible, taxpayers must
be single without dependents and have had only one job last year. They also
must not have earned any interest on a checking account or other investment
last year.
He says that 20% of tax-paying Californians fit those requirements.
--
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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
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