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Intuit Is Right to Fight Form-Free Tax Filing

Tax season could be a stress-free time for filers if we just let the Internal Revenue Service file our returns for us. But instead of living carefree lives, we're forced instead to pore over complicated forms or pay someone to do our taxes for us -- because tax prep software maker Intuit (NASDAQ: INTU  ) opposes so-called form-free filing. It's not the labyrinthine tax code that's the villain here, but a corporation looking out for its own profits.

Last week, as taxpayers were rushing to render unto Caesar by the April 15 deadline, liberal public policy group Pro Publica and nonprofit media organization NPR issued a study attacking Intuit for fighting "free, simple tax filing." The system -- which is low-cost, endorsed by everyone from Ronald Reagan to Barack Obama, and already adopted in Denmark, Sweden, and Spain -- would allow taxpayers to save millions of dollars annually by letting the IRS file their returns for them based on information employers and banks are already required to submit.

Well, it would, except that Intuit has lobbied extensively against it, presumably to protect the profits generated by its massively popular TurboTax software, the do-it-yourself tax-prep program that walks filers step by step through the filing process. Only 3 million people used the IRS' Free File service in 2012 compared to some 25 million who used TurboTax.

Although Intuit has divisions beyond helping individuals file their returns -- e.g., programs to help businesses file their taxes, keep their books, and offer payment-processing services -- the consumer tax programs are responsible for the lion's share of its revenue, accounting for 36% of the total in 2013 (its fiscal year ends in July of each year). Revenue was up 9.5% last year, slightly lower than the 10.4% growth it notched the year before but ahead of the 6% to 8% increase it anticipates generating in 2014.

While Intuit no doubt prefers that people continue to use its software, its argument is a lot more nuanced than simple opposition to letting IRS agents file your returns. The tax prep specialist says that letting the IRS do the work would change the dynamic of tax filing: Whereas taxpayers currently try to maximize their deductions, we could instead have IRS agents working to maximize the government's revenue. The role of the IRS is to bring in as much money as possible, so it will be conflicted when completing the paperwork. A return-free filing model also removes the taxpayer's voice from the process, and there's value in the pain experienced each year when you see just how much money you're sending to Washington.

Even Intuit itself offers free e-filing of taxes to a variety of taxpayers. For example, it notes on its company blog that "anyone who has an adjusted gross income of $30,000 or less, or is active duty military with an adjusted gross income of $58,000 or less, or who qualifies for the Earned Income Tax Credit can use TurboTax Freedom Edition," a free federal tax filing service. Over the past decade Intuit has donated more than 22 million federal and state tax returns to low- and middle-income taxpayers.

In the end, reducing the complexity of the tax code would do more to make the process of filing a return less stressful than giving up the ability to ensure you're keeping all the money you're entitled to. A flat tax would be easier still. In the end, it's really your money; you earned it, and you should have a say in how much of it you're giving Uncle Sam, rather than trusting that he will pursue a fair tax return as aggressively as you would.

Do you trust the government to file your taxes on your behalf? Let me know in the comments section below if you think Intuit's wrong for believing the IRS is a less-than-disinterested observer in revenue collection. 

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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 May 01, 2014, at 2:44 PM, Hef311 wrote:

    Wrong - A return-free filing model does not remove the taxpayer's voice from the process, it simply pre-populates the forms. Intuit has the right to tout their software, but it's a little evil to lobby through underground anti-return-free right-wing groups and spread disinformation and fear of the IRS keeping your money!

    There is absolutely no reason against return free filing for 1040EZ tax filers, but of course that takes money away from Intuit and their cash-cow yearly customers. They clearly benefit by keeping the tax code complicated and restricting easy filing.

    Now for more complex, itemized filing - the forms should merely be pre-populated and then of course deductions and everything else can be filled in. And again its voluntary!

  • Report this Comment On August 12, 2014, at 6:35 PM, borneofan wrote:

    First, lets admit that Milton Friedman never should have instituted withholding, creating the concept of "takehome pay".

    Then lets admit that the number one beneficiary of code complexity is government employment, then accountants, then politicians for the smokescreen it provides, and of course lobbyists and the sea of special interests from the 501c's like the Sierra Club to mega caps like Exxon. There are goodies in the code for everyone.

    Finally, since Intuit is giving away the web based freedom version, I suppose the feds and INTU could prepopulate the basic forms. But can you imagine the security holes and privacy issues? Government in general and the IRS in particular, represent the largest security and privacy risk in this country. And this would have name address tax ID phone employer and employer ID in one web accessible spot. It would be a huge hacker target.

    Read up on SIRF and ask if you really want to create a single point of failure that is so easily compromised, for 10 million folks? Not me.

    ObamaCare for the IRS would be a more likely outcome.

    Myself, I prefer creating an alternative flat tax system, running in parallel with the current corruption and subsidy machine. A postcard with a flat 5%. Put a trigger in the law so that when 70% of tax returns are filed "flat rate" the AMT and entire existing tax structure is repealed and jettisoned forever.

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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