Should the IRS do your taxes?

What if you could go to the IRS Web site and prepare and file your tax form yourself—for free—without the need for a  third-party program like Intuit's TurboTax or H&R Block's TaxCut? Would you do it? And would it be worth it for the federal government to let you do it?

According to the Computer and Communications Industry Association, a trade group that includes Intuit and eFile Tax Returns among its members. not only would the government lose money providing the service, but taxpayers wouldn't want it anyway. Their report, published today, concludes—no surprise—that the private sector does a much better job servicing taxpayers than the IRS ever could, so there's no need for the government to step in.

The IRS's stated goal of increasing the rate of electronic filing to 80 percent of individuals wouldn't be served by such a change, either, the report says. There are enough viable options out there—including the IRS's FreeFile, available to 70 percent of taxpayers—to encourage folks to file electronically. Most folks who are going to file electronically are already doing it themselves, or through a tax preparer, the report says.

What's more, taxpayer concerns about government abuse of their private information, lax government information security, and inaccurate answers to tax questions favor solutions from the private sector, the report says.

"We've done polls showing a healthy skepticism regarding privacy," says Edward J. Black, president and CEO of the CCIA. "We see the software companies as a viable buffer. ... People did not feel totally comfortable with a complete turnover of information to the government."

But Joe Bankman, a professor of law and business at Stanford Law School. sees a government role in tax preparation as a defense of taxpayer rights. The government already has a lot of taxpayer information, he notes; it requires employers, banks and investment companies to report that data before passing it on to taxpayers on W-2 and 1099 forms. "If you’re suspicious of the government, you’d want to know what files they’re keeping on you for tax purposes," he says.

Bankman's idea is for taxpayers to be able to see that tax-related information online before they file. "The government could start the ball rolling by saying, 'This is in our computer.' If that is all there is, you can file online." he says. "And if there’s more to do, you can go to a preparer and see if you can do better." 

Bankman says the system could also make the act of preparing taxes less, well, taxing for lots of people. He helped the state of California set up its ReadyReturn program, in which single taxpayers with very simple returns—just W-2 income—go online to check their California tax forms, prepared by the state, then click to authorize and file. Bankman says that while the state didn't publicize its pilot program for its inaugural season four years ago, up to 20 percent of those eligible used it, and the responses were 99 percent positive.

Bankman says a government-sponsored tax preparation system could be expanded to serve the two-thirds of taxpayers who are non-itemizers, with only wage and interest income.

"Visa doesn’t send you a blank piece of paper and say, 'Write down your [credit card] transactions," he notes. "It's the Visa model we want."

What do you think? Should the IRS, not private companies, provide the means to prepare and file your taxes directly? —Tobie Stanger

Comments

[D NILSSON]

WHILE ITS TRUE, THE PRIVATE SECTOR TAX PREP IS MORE ACCURATE FOR THE PAYING CUSTOMER, THE PROBLEM LIES IN THE LOW AND MIDDLE LOW INCOME SECTOR OF OUR POPULATION. THE H&R BLOCKS OF THE WORLD CHARGE WAY TO MUCH FOR LOW INCOME PEOPLE TO AFFORD PROFESSIONAL TAX PREP, THE ON-LINE FREE TAX PREP IN MANY CASES IS TO COMPLEXED FOR COMMON FOLK TO NAVIGATE THRU. THIER FORE IT MAKE PERFECT SENSE FOR THE IRS TO GET INTO THE TAX PREP BUSINESS. ALTHOUGH I THINK THE IRS SHOULD CHARGE A MODEST FEE FOR THE SERVICE AND BE ALLOWED TO ACCESS THEIR OWN RECORD TO ENSURE COMPLETE DISCLOSURE OF INCOME AND DEDUCTIONS. THE FEE WOULD HELP COVER THE ADMINISTRATION OF THE PROGRAM. IN DEFENCE OF THE IRS, CONSIDERING THE VAST POSSIBILTIES OF QUESTIONSSUBMITTED TO THEM AND THE MANY POSSIBLE ANSWERS, THEY DO A GOOD JOB, HOWEVER CONGRESS HAS LIMITED THE SCOPE OF QUESTIONS AND TOPICS THAT ARE ALLOWED TO BE ANSWERED BY THEIR TAXPAYER SERVICE EMPLOYEES. THIS GUIDLEINE SHOULD BE ABANDONED FOR A BETTER SYSTEM WHICH ALLOWS IMMEDIATE ANSWERES TO A QUESTION BY A TAX SPECIALIST IN THE AREA OF EXPERTISE. OF COURSE THE PROFESSIONAL TAX COMMUNITY WILL OFFER UP THIER EXPERTISE FOR A FEE AS A BETTER WAY TO GO. WHY NOT HAVE BOTH WITH NO RESTRICTIONS, IT MORE EFFICENT GOVT AND CHEAPER FOR THOSE WHO CAN'T AFFORD THE BIG H&R BLOCK TYPE FEE'S