Intuit Is Right to Fight Form-Free Tax Filing

Tax-prep software maker has been criticized for trying to keep taxpayers from participating in the tax-filing process.

Apr 20, 2014 at 1:00PM

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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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Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Intuit. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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