The Cronyist Cesspool of Tax Prep

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I’m not exactly a big-government kind of guy, but when it comes to, uh, taxes, I tend to admit that the state has a role to play. In a sane world, the IRS would bend over backward to help people fill out their forms accurately so it could focus its resources on hunting down serious tax evaders rather than fixing basic math errors. With modern technology, this would entail not only a free, easy-to-use way to report your information online, but even forms that are already filled out before the taxpayer sees them — because the government already knows, for example, how much money you make, thanks to the information filed by your employer. We know pre-filled forms are possible because some other countries already have them.

But no: Thanks to lobbying by the tax-prep industry, the government has deliberately avoided taking these steps. Tax-prep companies agreed to offer a free option to everyone making less than $66,000, and in return the government explicitly agreed not to simplify things for everyone else.

And as ProPublica just reported, the “free file” option is woefully underused. Only 3 percent of eligible taxpayers file that way. The IRS is supposed to get the word out about it but has no advertising budget. And judging by newly released emails ProPublica had to sue to get, the tax-prep industry has a direct line to sympathetic IRS employees when it wants regulations changed. Industry representatives sent an “urgent” — and successful — request to have the free-file arrangement extended just weeks before the release of a report detailing its failures, even though the agreement wouldn’t expire for another two years. The reps did offer some modest concessions in return, mainly regarding how much they were allowed to try to upsell free filers to paid products, but so far as can be seen from the emails, the IRS made no attempt to negotiate a better deal.

It’s time to put a stop to this nonsense. The IRS needs to develop a system for providing pre-filled forms whenever possible, and also create an online portal that allows users to provide their information in a more human-friendly format than the indecipherable numbered forms we all know and can’t stand. The tax-prep companies should remain free to provide their own alternatives — yes, I remember the launch of the Obamacare exchanges — but they shouldn’t be able to kneecap the government’s ability to streamline tax collection, which is about as core of a government function as it gets.

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