Rep. Bill Foster, an Illinois Democrat, has proposed legislation “to amend the Internal Revenue Code of 1986 to establish a program to populate downloadable tax forms with taxpayer return information."
American taxpayers and businesses spend more than 6 billion hours each year fulfilling their tax-filing requirements. Nearly 90% of taxpayers pay either for the services of a tax professional or for a software program that can help them complete their returns, according to the National Taxpayer Advocate’s 2012 Annual Report to Congress.
One way to alleviate some of this pain could be to have the IRS complete taxpayers’ returns. After all, the Service already receives information on earnings through Form W-2s, and on interest and dividends through Form 1099s. In fact, it uses the info it has to check taxpayers’ returns once they’re filed. This would just reverse the process.
That’s the thinking behind the Autofill Act of 2013 (H.R. 1532), introduced in mid-April by Rep. Bill Foster, an Illinois Democrat. The complete title of the bill, “To amend the Internal Revenue Code of 1986 to establish a program to populate downloadable tax forms with taxpayer return information,” essentially describes what the proposed legislation would do. “Our tax code is complicated enough, (and) we shouldn’t be asking taxpayers to submit information the IRS already has,” Foster said in a statement. “It’s time to bring the tax filing system into the 21st century with a common sense solution that reduces the burden on taxpayers and decreases the costs associated with filling out tax forms.”
If enacted, the proposal would save an estimated $2 billion annually in fees, Foster’s statement indicated. The program would be voluntary, and taxpayers would be able to review the information.
According to this article in ProPublica, Denmark, Sweden and Spain already have similar programs in place.
That’s not to say the idea has broad support in the U.S. In March, a dozen organizations, including Americans for Tax Reform and the National Taxpayers Union, sent a letter to Congress that read, in part, “If the IRS invites a conflict of interest by adding ‘tax preparer’ to its role as ‘tax collector,’ it’s a near-certainty that everyone’s taxes will rise.”
The letter urged legislators to support another bill, H.R. 495, or the “Free File Program Act,” sponsored by Rep. Peter Roskam, a Republican from Illinois. The Act would continue the IRS’ Free File program, in which free online individual income tax preparation and electronic filing services are provided to lower income taxpayers. Unlike the Autofill Act, private sector companies provide this service. The bill has 52 co-sponsors, compared to two for the Autofill Act.
Also lined up against the Autofill Act is Intuit, the makers of TurboTax and a member of The Free File Alliance. Free File, a 2010 blog post on Intuit’s website points out, is done at no cost to taxpayers. Moreover, having the government not only collect and enforce tax policy, but also prepare tax returns, presents a conflict of interest, Intuit says.
At the same time, a program like the one envisioned by the Autofill proposal represents competition for Intuit. Its 2012 10-K states, “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.”
Even if the Autofill proposal was enacted – a scenario GovTrack gives a 1% chance of occurring – it’s unlikely it would work for more than the simplest returns, says Michael Eisenberg, a Los Angeles-based CPA with Eisenberg Financial Advisors. “Any complication beyond a W-2 and straightforward interest” would make it difficult for the program to correctly complete a return.
Few small business owners would be able to use such a program, Eisenberg notes. For instance, those whose fiscal year didn’t align with the calendar year likely would find their information at odds with that on hand at the IRS. And the IRS’ information likely wouldn’t account for sales, such as to retailers, made in cash.
Perhaps more importantly, Eisenberg says, taxpayers should be knowledgeable about their finances. Preparing one’s tax returns helps with this.
What are your thoughts on IRS preparing taxpayers’ returns? Does it present a conflict of interest for the Service? Or is it a way to more effectively use information the IRS already has?