This Company Fought to Keep Your Taxes Complicated -- and Won

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Every year, Americans spend an estimated 225 million hours and $2 billion preparing their taxes. It doesn't need to be this way. Wouldn't it be great if your taxes were done for you free of charge, and all you had to do was make sure nothing was wrong with them? That's the idea behind "pre-populated filings," where the IRS would prepare your tax filing for you. In the recently released "Tax Reform Act of 2015," however, the bill includes a section that prohibits the IRS from starting such a program. Read on to find out more, including the company that has spent millions lobbying against "pre-populated filings."

Pre-populated filings
The government already collects most of the data it needs from employers and brokerages for those with simple tax filings. The idea behind "pre-populated filings," also known as "return-free filings," is that the IRS would use the data it already collects to send you your tax forms with all the information already filled out. If it were correct, you wouldn't have to do anything. If not, you would send back corrections. While not everyone would qualify, those with simple taxes wouldn't have to go through all the hassle that comes every tax season. This isn't an unrealistic idea, either; Spain, Chile, and some Nordic countries have been doing this for nearly a decade.

Simpler taxes
Two weeks ago, Rep. Dave Camp (R-Mich.) released the first draft of the "Tax Reform Act of 2015." The bill, which took three years to compile, proposes to simplify the tax code by 18,000 pages, or roughly 25%. To make this happen, the bill simplifies income taxes brackets from seven brackets to three, repeals the Alternative Minimum Tax, repeals numerous small deductions, and significantly raises the standard deduction. You can read about what the Tax Reform Act of 2015 could mean for individuals here.

Ban on pre-populated filings
While the Tax Reform Act of 2015 proposes to make the tax code itself simpler, the bill includes one specific provision to make sure the government cannott make preparing your taxes simpler. Section 6103 of the "Tax Reform Act of 2015" specifically prohibits pre-populated returns. The summary reads (italics mine):

Provision: Under the provision, the IRS would be prohibited from instituting any program under which it prepares or otherwise provides taxpayers with proposed or final returns or statements intended to be used by the taxpayer to satisfy his reporting obligation under the Code. Thus, the IRS would not have authority to implement a broad-based program under which it pre-populates a return with third-party information supplied to the agency (e.g., Form W-2 wage statements, Form 1099s for interest, dividends or capital gains) and provides such return to a taxpayer for filing.

Leading the charge against simpler taxes
The above section of the bill is a handout to the tax prep industry, which would take the biggest hit from such a program. Last year, an investigation by ProPublica found that one of the groups leading the charge against "pre-populated filings" is Intuit (NASDAQ: INTU  ) , maker of the popular tax-preparation software TurboTax. ProPublica's investigation found that Intuit had spent $11.5 million over the past five years lobbying congress on the tax prep issue.

It shouldn't surprise anyone that a company will fight to preserve a problem that only that company can solve. Intuit even singles out in its annual report the risk that the government will offer free returns to taxpayers:

Our consumer tax business also faces significant competition from the public sector, where we face the risk of federal and state taxing authorities developing software or other systems to facilitate tax return preparation and electronic filing at no charge to taxpayers. These or similar programs may be introduced or expanded in the future, which may cause us to lose customers and revenue. Although the Free File Alliance has kept the federal government from being a direct competitor to Intuit's tax offerings, it has fostered additional online competition and may cause us to lose significant revenue opportunities. The current agreement with the Free File Alliance is scheduled to expire in October 2014. We anticipate that governmental encroachment at both the federal and state levels may present a continued competitive threat to our business for the foreseeable future.

Bottom line
The overall changes to the tax system would be a net positive if adopted, but either way, you'll still have to spend hours preparing your taxes. In 2002, the tax software industry and the IRS started a public-private partnership to offer some taxpayers free online tax-filing. The agreement expires later this year and has not yet been replaced.

In both the public and private sectors, governance functions best when stakeholders educate themselves, take an active interest in what's going on, and hold their representatives accountable. So take a moment to let your representative know what you think of the Tax Reform Act's restriction on "pre-populated filings" or write directly to the House Ways and Means Committee at TaxReform.gov.

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Read/Post Comments (22) | Recommend This Article (24)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 18, 2014, at 5:44 PM, xetn wrote:

    The only real tax reform would be to repeal the 16th amendment and eliminate the income tax. That would certainly simplify everything and you would get to keep all of your income. Think of the huge increase in spending the increased disposable income would produce, not to mention the increased ability to save and invest.

  • Report this Comment On March 18, 2014, at 5:54 PM, Kerroj wrote:

    Yeah, and think of all the bridges that will collapse due to the lack of tax money to fix them...

  • Report this Comment On March 18, 2014, at 6:24 PM, jssiegel wrote:

    ~16! Not to mention eliminating various abuses by the IRS and other agencies. The income tax is a relic of the Civil War and deserves to be buried.

    And isn't bridge maintenance supposed to be funded by vehicle and fuel taxes? An excellent example of services being paid for by those who actually use them.

  • Report this Comment On March 18, 2014, at 7:25 PM, Navy12 wrote:

    Why can't we have Congressman and Senators do what they make laws for us citizens to do!

  • Report this Comment On March 19, 2014, at 1:03 AM, MJFant wrote:

    I read a book one time that said the only industry that doesn't have lobbyists is accounting because whatever happens in Washington, the tax system helps them always benefit.

    I think the author was being a little facetious, but sometimes I'm not so sure.

  • Report this Comment On March 19, 2014, at 1:32 AM, SuntanIronMan wrote:

    @Kerroj

    Money for bridges and roads will typically come from federal and state gasoline taxes (and tolls, of course). Or at least that's what gasoline taxes are suppose to go toward. Whether those gasoline taxes actually end up paying for roads, bridges, and whatnot is up to various government entities.

  • Report this Comment On March 19, 2014, at 11:24 AM, pondee619 wrote:

    "investigation found that Intuit had spent $11.5 million over the past five years lobbying congress on the tax prep issue."

    435 Representatives in the House;

    100 Senators;=

    535 Legislators

    $11.5 million over 5 years= $2.3 million per year divided by 535 Legislators= $4,299 per year per Legislator . This is what a Congressional vote costs. It's not the fact that they are for sale, it's the fact that they can be bought so cheaply.

    Just $11.77 per day, per legislator. Take the SOB out to lunch and you get his/her vote. And we, the voters who hire these people, allow it to happen and continue. Watch, 90% of all Legislators running for re-election will be Re-elected.

  • Report this Comment On March 19, 2014, at 12:10 PM, TMFDanDzombak wrote:

    @xetn Disagree. Think the Camp Plan counts as some real reform

    http://www.fool.com/investing/general/2014/03/02/what-the-pr...

  • Report this Comment On March 19, 2014, at 12:11 PM, Libor8erBlake700 wrote:

    0) Tax is rarely ring-fensed. E.g, England had Road-Tax & Nazi-onalized Health Insurance Tax for dekades, but neither bears 1-for-1 relation to its nominal purpose. If it did, it'd expoze obssene amounts wasted on bungling bureau-krassy & korrupt politishans unquantified in jeneral taxation method.

    1) Minor exseption is English TV lisense fee, remnant of Marconi days when British Broadkasting Cº° was world's 1st kommershal radio station funded, not by adverts, but by sale of radio sets & by Royalties from hobbyists building their own sets. Even tho' he only watch independent TV, an Englishman must pay tax to banal, bloated, pampered, puerile gov't Radio & TV network. In 1920 evil amerikan gov't said "Thanks, Elmo, but you're a foreigner" & Marconi assets were siezed & transferred to new RCA. In 1926 his BBC, co-owned by 7 other kowards, was nazi-onalized into present BBC.

    2) Intuit has duty to shareholders to rezist unfair, tax-subsidized kompetion by govern-mental gangster-I.R.disServise.

    3) Government's sole rôle should be, protekt individual mutual freedom, not assume rôle of gangster itself thru' elektoral dikatorship.

    4) To see how we'll all dejenerate under pestilense personified in Nosferatu-Kare, read Ayn Rand's prophetik 1957 novel Atlas Shrugged or better, see the film, parts 1 & 2 already issued, part 3 in produktion.

    5) Before murderous Spaniard, Dutch & English invaders, Amerikan tax, had it existed, would've been merely tribal.

    6) Now Amerikan goonverment has not enough tax-kompetition from, say Canada nor Ireland nor S Amerika nor Switzerland.

    7) On a sane planet, Publik Subskription is Voluntary Subskription, i.e. no tax; Politiks are to be Voluntary, Unpaid, Part-time okkupation, i.e. no kareer-politishans - they must EARN a living; & any standing army should be kontributed @ lokal level. Time to return to bastardfeudalizm & sesede from a Dishonest (Abe) Union which misinterprets the orijinal konstitution. And this time the good guys need win the war.

    8) But you won't, will you, it's too late. Permanently entrenched Nosferatu has Big-Brother texnolojy Stalin & Honneker would've envied & one medium of your invidious, insidious surveillanse is Nosferatu-Kare itself. Nowhere to hide! Baby we were born to run!

    Servalan & Blake 700.

  • Report this Comment On March 19, 2014, at 12:24 PM, TMFDanDzombak wrote:

    @MJFant

    Great comment though no longer true

  • Report this Comment On March 21, 2014, at 5:19 PM, atkinskd wrote:

    Once again efficiency is becoming our undoing as entire industries can be supplanted with new concepts and practices. It's ok when a robot replaces people in the $10/hr workforce 10:1 but start messing with fields like accounting - oh no we can't do that. The same is true for energy - Thorium replaces coal 300,000 to 1. What to do with all the miners, equipment, railyard etc corporations/industries. Efficiency is great while someone can profit from it. Nevermind the collateral damage that occurs.

  • Report this Comment On March 21, 2014, at 10:59 PM, classic216 wrote:

    H & R Block is the better stock to buy for dealing with tax complications.

  • Report this Comment On March 21, 2014, at 11:35 PM, gskinner75006 wrote:

    More proof all politicians are on the take on way or another.

  • Report this Comment On March 22, 2014, at 6:17 AM, DJDynamicNC wrote:

    "Once again efficiency is becoming our undoing as entire industries can be supplanted with new concepts and practices"

    This is the fundamental challenge of our time. It's why I'm very active in pushing for a basic income guarantee - unless we separate survival and wages, we'll find that what should an ideal advance - total automation - will instead prove an economic catastrophe.

  • Report this Comment On March 22, 2014, at 6:18 AM, DJDynamicNC wrote:

    "More proof all politicians are on the take on way or another."

    Interestingly, lobbying is actually guaranteed by the Constitution, so you can't take it away. It's your right to petition for redress of grievances.

    Remember, a special interest is just something that's at least slightly more specific than the general interest. Literally every single person in America is a special interest of some sort. Would you not expect to advocate for your interests?

  • Report this Comment On March 22, 2014, at 9:21 AM, VitamanD wrote:

    Now this is great journalism. Put it on the front of time magazine; so much money would be saved by if this was done. Lobbying is just another form of corruption.

  • Report this Comment On March 22, 2014, at 9:54 AM, OneFiftyOne wrote:

    DJDynamicNC: "Literally every single person in America is a special interest of some sort. Would you not expect to advocate for your interests?"

    If your 'interests' are at the expense of others, then it is just not right.

  • Report this Comment On March 22, 2014, at 10:26 AM, tbotkin1 wrote:

    @OneFiftyOne

    I don't think he/she was implying that your interests be at the expense of others...the comment, in my opinion, is still true. The only thing that's "just not right" is to not advocate for what you believe in.

  • Report this Comment On March 22, 2014, at 11:32 AM, bremenpkr wrote:

    I would advocate for "my" interests at times- we might all advocate for the interests of others, even at our own expense. Thus the advocacy for people who are too ill or otherwise unable to fully provide for themselves.

    Too bad all the "charitable donations" out there cannot take a portion to pay for "what needs to be done" in small, job lot fashion. It seems clear that with all of those in power supposedly on the take, not enough focus is on taking a few bucks to pay the guy down the road who is seasonally out of work to do some public work mini project that isn't in the town or county budget but really needs to get done - and that isn't big enough to provide a full time job-with-benefits.

  • Report this Comment On March 22, 2014, at 1:04 PM, crca99 wrote:

    Anyone ever try to correct a pre-populated government form? I prefer to see a simplified tax code, period, no further embellishments. Intuit already pre-populates with data I've supplied.

  • Report this Comment On March 23, 2014, at 9:58 AM, Nolte808 wrote:

    I wrote in on taxreform.gov. Thanks for flagging this. Congress should do all it can to block unnecessary frictional costs on its taxpayers and this is a perfect example.

  • Report this Comment On August 13, 2014, at 8:58 PM, thidmark wrote:

    Given that everything we do, short of taking a dump, is taxed, there should be plenty of money for bridges. Alas, bridges don't vote ...

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