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Your Take: TurboTax Lobbying Against Simple Tax Filing?

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1040 Tax FormsOn pretty much the eve of tax day, imagine a world in which the IRS mails you a prepared return and all you needed to do was review and sign it? It’s estimated that tens of millions of taxpayers would be able to use it, save around $2 billion and 225 million hours of preparation time. Now imagine if that reality were squashed by classic Washington lobbying – specifically by Intuit, maker of TurboTax. That’s what ProPublica and NPR are saying. Intuit has spent $11.5 million on federal lobbying in the last five years and while it’s unclear what they were lobbying, chances are they weren’t in favor of this prepared return.

If you look at tax preparation software, you’ll know that the simplest returns are often done for free. Companies offer this because it locks you into their system. Eventually your return will be more complicated and you’ll need to pay for software. Until then, they’ll gladly give you free until you pay. So you get five years of free returns, no big deal, when you start paying you’ll be paying for 40 years of returns. It’s a smart business decision.

I don’t know if I’d trust the government prepared tax return given our current tax law. Enough changes from year to year that I suspect the cost of implementing this system will negate the cost savings on a small percentage of the population. Do we want to subsidize their tax preparation? Just think about tax law in the last ten years and how it has changed. Just this year we had the fiscal cliff (resolved after the new year). Then there was Tax Relief Job Creation Act of 2010 that extended the Bush-era tax cuts just a few years earlier (resolved a couple weeks before the end of the year). In both cases, the IRS notified the public that forms would be delayed while tax law was being finalized.

I don’t see the government sending our prepared forms as a win-win situation but I also don’t like seeing companies like Intuit lobbying against it. The only way to achieve progress is to think about and discuss these ideas. I can’t see simple filing working but that doesn’t mean, through an iterative process, we can’t build a system that will work. By lobbying against it, only those who offer tax preparation services will benefit.

What do you think?

(Photo: blmurch )

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19 Responses to “Your Take: TurboTax Lobbying Against Simple Tax Filing?”

  1. NateUVM says:

    The “tens of millions” that could use this new method indicate to me that this would, initially, be only for those whom have a VERY simple tax return. Sort-of the same population that gets the free tax preparation from TurboTax, that you mention.

    Perhaps, over time, it would apply to more and more people, with more and more complicated tax returns. Maybe that is how they plan to work the kinks out of the system. In a way, it’s sort-of a play on the same “drug dealer” approach Intuit is using with TurboTax, but in reverse, and at cost savings to the users.

    Seems this would also partially reduce liability on are part, too. I mean, say there WAS a delay due to legislative wrangling, and they couldn’t get these forms out until, say…April 10th? You don’t think that they would give the American public an extension on getting it back in?

    Just seems like a reasonable way to get things done. You want us to give you all this information? Figure out a way to make it easier for us to do so.

    Also, simplify the tax code. That would help.

  2. Aaron B says:

    Coincidentally, I read this article via Ars Technica last night. While I kinda-sorta-maybe get some of the arguments against it, I really don’t like Intuit’s ulterior motives (and I’ll leave out my feelings about their alignment with Norquist).

    Add this to TurboTax’s ever-increasing cost and their exceedingly lame state support, and I’ll be looking for an alternative tax software in early 2014.

  3. Mario says:

    I disagree with the hesitancy about how well the government could do this. As noted in the source article, there seems to be a lot of convincing arguments that it can be done well.

    Aside from three European countries doing it already, the tax policy center seems to advocate it greatly. I’m also convinced that it can be done well…and I suppose my part of my belief is based on the fact that, as a user of TurboTax, I know they also employed *the exact same system*.

    One of their paid versions pre-fill everything for you and all you need to do is change whatever is different — it seems to be a popular sales tactic for them. The IRS’ pre-fill version should actually be even better seeing as they actually get sent your tax information, unlike TurboTax which uses the information you filed with them the year before (assuming you used them the year before).

    Honestly, the only thing this lobbying by Intuit has done, especially with disingenuous arguments like ‘IRS TAKEOVER’ and ‘MASSIVE GOVERNMENT EXPANSION’, is convinced me this is a good thing and that it should be done as soon as possible.

  4. Scott says:

    So the government is trying to get a controlling stake in Intuit now similar to how they had one in GM? Interesting…

    I wonder if the IRS thinks the number of audits, extensions, and corrections will decrease if they prepare the forms themselves first.

  5. “The “tens of millions” that could use this new method indicate to me that this would, initially, be only for those whom have a VERY simple tax return. Sort-of the same population that gets the free tax preparation from TurboTax, that you mention.”

    Yes, I agree! And I also suspect strongly that many people using this “free” method would end up paying through the nose because they wouldn’t be directed to all the deductions that they are entitled to. I’m suspicious that this “simple” tax return would encourage people to keep filing a 1040-EZ LONG past the point where itemizing makes more sense.

  6. Definitely a case of a corporation trying to protect their bottom line.

    Simplification of the tax code would also help a lot!

  7. freeby50 says:

    Intuit is clearly just interested in protecting its business. They spent $11 million in lobbying.

    The prepared forms would probably be targeted at people who do 1040EZ or other simple returns. Those 1040EZ forms are so simple I can do one in 5 minutes by hand. It has little more than a W2 and your filing status. No reason at all those shouldn’t be automatic in a prepared fashion. 18 million people do 1040EZ.

    The fact is that the IRS basically already figures everyones return. They pretty much have to in order to know if the return you submitted is legit. Their computers record your W2 and 1099 info and then figure your tax rate for you. Then they process your return and comprae what you told them to what their computer figured. I’m sure a LOT of the time their computer and your numbers match exactly. (thats why you weren’t audited) So if you have a very simple return then it would be pretty trivial for the IRS computer to spit out a prepared return based on the information it already has. Then when you sign it and return it, its easier and cheaper for the IRS to process your return. They just check a box and its done, they don’t have to scan or decode a return you submitted yourself and then doublecheck your work or audit you.

    To me this is a clearly good idea all around sabotaged by a companies profit motive and lobbying.

  8. Fabclimber says:

    Turbo Tax? Never again!

    I used Turbo Tax last year for the first time. I bought it using a discount coupon through a credit card offer. When I got the end of my return work the program said I couldn’t file electronically because of a certain item on my return and that I must send a paper return which I did.

    At the end of the work session I did not receive my discount and was charged full list price of the software. can you spell RIP-OFF?

    There is nothing wrong with the IRS site, and the forms and publications are all there for you to download and study as needed.

  9. vik says:

    If you don’t like TurboTax, use other (cheaper) alternatives: TaxAct, for example. It does the job as well with as little as $13 (fed+state). Plus, it’s mentioned in NPR Planet Money as one of the “maverick company” that turbo tax is not considered monopoly.

  10. NateUVM says:

    @ Jenny – Wow. Quite the cynic, eh?

    I disagree, but it’s because of a personal experience…

    Remember back in 2007 or so(maybe 2008), when Bush II gave everybody a refundable tax credit? Well, turns out that, if you didn’t get it automatically, you could get it through your tax refund. Well that year, when we filed, we must’ve done it a little hastily and forgot to read the directions fully. I mean, both my wife and I had received our refunds prior to filing, so we thought we were all set.

    However, since the credit had been sent to us, but prior to the end of the following year, we had had a child. And apparently you get a bit more for that. In any case, the IRS noticed the error, sent us notice of the error, and issued the additional refund, along with our pre-figured refund, all without having to re-file.

    So, no, I do not think that this will be used by the IRS as a means to keep qualified individuals from getting all their refunds/credits/deductions/etc… They seem to have a history of wanting to make sure people get what is due to them.

  11. Phil Smith says:

    It is interesting how much money Intuit has spent trying to stop this happening.

    Tends more to reflect what a scummy activity lobbying is. Not mainly directed at improving things for the average person. But rather just a way of making someone somewhere more money.

    The idea of simpler tax returns has to be good. Though honestly, in this day and age why anyone would be “mailing” anything is beyond me.

    Why not do away with all the paper and get everyone to post their tax return online?

    Most countries in Europe manage it. Why is the US so behind the times?

  12. Marilyn says:

    I’m in favor of a simple, pre-made form. My husband and I use an accountant but when I was single, I filed my own taxes online. I was shocked when e-filing first arose and the government did not provide their own e-file system and tax payers were forced to use Turbo Tax, Tax Act (which I always used), etc. It’s unpopular to say this in the era of privatization but citizens should not be forced to use the services of an outside corporation. We should always have the choice of dealing directly with our government and that interaction should be as simple and efficient as possible.

  13. admiral58 says:

    I’m also in favor of a simple form

  14. Shirley says:

    I have successfully used TaxACT for the past 13 years so I have no personal experience with TurboTax. However, I do know several friends who have used it and had complaints. I believe that their lobbying against simple tax filing will only add to their already somewhat tarnished reputation and decrease their customer count.

  15. Texas Wahoo says:

    Companies like TurboTax may offer free software to people with simple returns, but I believe you still have to pay something like $35 for state filing if you live in a state with income tax.

  16. Although I’m really concerned about Intuit’s motives. I think it would generally be a good thing. Or maybe this should be an option instead of what everyone gets. The option for them to send people a prepared return for possible use and/or get it done themselves.

  17. admiral58 says:

    Yea, that’s where turbotax certainly makes their money, from the state filers

  18. LinseyK says:

    I have used TurboTax for years and love it, and in an ideal world, it would be GREAT if the government could handle simple tax processes. I have seen evidence first-hand of how poorly the IRS has done with just the basic number verification of a simple return, however.

    I was issued a CP2000 just a few weeks ago for a 2011 return that the government claimed I owed $15,000 in back taxes on. Turns out, they took the $600 1099 that my client sent to them electronically and somehow input it into the IRS system as $60,000. This is not an uncommon practice, and further proof that errors do happen.

    A simple return initiated by the IRS should not be trusted, in my opinion, as it’s pretty hard to get damages from them for any errors they make. A private company like TurboTax or H&R Block, however, could get into the business of doing this simple form for the IRS, and it could be seen as a good thing, as they could have some flesh in the game for any instances of under-performing.

    While I don’t expect perfection from anyone (private or government), there are too many errors being made for me to blindly sign off on a simple return prepared by anyone. Just take a look at how much money the IRS makes off of CP20000 notices that went undisputed, even though the tax payer likely was right when they filed it and the IRS was the one who made the mistake. We need to be more diligent about our taxes, not more hands-off, in my opinion.

    “The notices aren’t always right, but some taxpayers either assume the IRS knows best or are so leery of fighting the behemoth and its computers, that they pay money they don’t owe.”

    http://www.forbes.com/sites/janetnovack/2010/08/30/dont-be-cowed-by-the-irs-computers/

  19. Shafi says:

    I have used TaxAct for more than 10 years. It’s a lot cheaper than others.

    By the way, both houses of Congress listen very attentively to the lobbyists. That’s where they get most of their money.

    No Congress rep has put himself/herself in a position of saying NO to the lobbyists. They never will.

    If they did, they won’t get elected the next time.

    President Lincoln was right but only for his time and era.

    These days the mantra is “Of the lobbyists, by the lobbyists, for the lobbyists.”


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