IRS Pushed to Offer Free Online Tax Filing

[MichaelB]

Being able to prepare and file simple tax returns using IRS SW is a good idea.

Turbotax just settled a case where they pushed people who qualified for free tax prep into paid products, and they have a checkered history.

In addition, many taxpayers meet the income requirement but don’t qualify, at least for TT, because they have child tax credits or itemize deductions.

The tax code is complex and this punishes many taxpayers. It’s unreasonable to expect people with simple situations to have to pay to prepare and file.

 

[Midpack]

Being able to prepare and file simple tax returns using IRS SW is a good idea.

Turbotax just settled a case where they pushed people who qualified for free tax prep into paid products, and they have a checkered history.

In addition, many taxpayers meet the income requirement but don’t qualify, at least for TT, because they have child tax credits or itemize deductions.

The tax code is complex and this punishes many taxpayers. It’s unreasonable to expect people with simple situations to have to pay to prepare and file.

Amen, well said.

 

[Teacher Terry]

My son does mine so it’s up to him. I am back to consulting so more complicated than the past two years.

 

[cathy63]

It will be interesting to see whatever they end up with. The government contracts out most software development nowadays, and I'm pretty sure the IRS does not have a dev team capable of building a public-facing tax prep and filing system.

Currently they have contracts with OLT to provide Free Fillable Forms; with TaxSlayer to provide software to the VITA and TCE groups, including AARP Tax-Aide; and with a bunch of e-file aggregators. They also have the Free File Alliance, which gives lower income people with simple returns access to commercial software.

I'm not sure who they can hire that can build them a whole new system without infringing on anyone else's IP. It'll probably end up as some huge contract with companies like Microsoft, IBM, Amazon and Booz Allen all getting pieces of the pie that have to be glued together; and then it won't work as well as the apps that are already on the market.

 

[braumeister]

Wouldn't it be cheaper and simpler to just simplify the tax code so it's easily understandable?

Not gonna happen of course.

 

[frayne]

There is an industry built around keeping the US tax code as complex and convoluted as possible and it ain't changing anytime soon.

 

[MichaelB]

Wouldn't it be cheaper and simpler to just simplify the tax code so it's easily understandable?

Not gonna happen of course.

That depends on how you go about it. It’s easy and inexpensive to simplify if you don’t care how the new tax burden is distributed across the economy. To simplify while all taxpayers keep their current tax contribution would be quite complex.

I think the greatest benefit to simplification is the potential increase in economic productivity resulting from the thousands of brilliant minds that currently are dedicated to tax avoidance and would then use their intelligence to take on challenges that benefit the economy, and society.

 

[foxfirev5]

I would try the free IRS option. If not, it's back to paper and crayon. Intuit or any other vendor will not see a penny of my money if I can help it. Actually I would prefer auto billing from my 1099's but that's a bit too much to ask.

 

[RetMD21]

It looks like importing data will come later if at all according to NPR's free link:

https://www.npr.org/2023/05/16/1176417594/irs-taxes-filing-turbotax-intuit-tax-prep

Brokerage 1099 is the import is the main value I get from software presently

This seems reasonable :

"The best way to be successful is to begin with a limited scope pilot that allows the IRS to test functionality for some taxpayers, evaluate success, and use lessons learned to inform the growth of the tool," Deputy Treasury Secretary Wally Adeyemo wrote, in a letter authorizing the test.

Even if I don't end up using the IRS system I'd like to see more competition

 

[Walt34]

I checked the box for "use IRS option" but that's with the caveat that it's at least as easy as TurboTax, which I think is highly unlikely for at least a decade, if ever, after they first offer it.

 

[MichaelB]

Updates

Some updates on this very timely thread.

First, the IRS announced a pilot program to test this idea. From the WSJ https://www.wsj.com/articles/irs-will-offer-free-online-tax-prep-for-some-taxpayers-in-2024-b5e19525

The Internal Revenue Service will begin a pilot program next year to help some taxpayers fill out and file their income tax returns for free online, taking the first step toward building a government-run competitor to TurboTax and H&R Block.

Here’s a link to a Reuters report not being a paywall https://www.reuters.com/world/us/irs-launch-free-us-direct-tax-filing-pilot-program-2024-2023-05-16/

Second, yesterday the IRS also released a report to Congress on this topic. It can be found here and gives us a thorough analysis, including cost estimates.

 

[cathy63]

Some updates on this very timely thread.

First, the IRS announced a pilot program to test this idea. From the WSJ https://www.wsj.com/articles/irs-will-offer-free-online-tax-prep-for-some-taxpayers-in-2024-b5e19525 Here’s a link to a Reuters report not being a paywall https://www.reuters.com/world/us/irs-launch-free-us-direct-tax-filing-pilot-program-2024-2023-05-16/

Second, yesterday the IRS also released a report to Congress on this topic. It can be found here and gives us a thorough analysis, including cost estimates.

That report is interesting. They have apparently already built a functioning prototype system that allows non-programmers to configure the workflow for simple tax returns.

My own experience in software engineering and government contracting tells me they are underestimating the costs though. They think they can implement the VITA scope* and serve 25M people for $221M per year, but implementing something like TCJA (or its provisions ending in 2026) is going to blow that right out of the water. Not to mention all the mid-year changes we dealt with during the pandemic that couldn't be planned and budgeted for; even the mileage rate changed in the middle of 2022 requiring double entries.

*VITA scope can be found on pages 6-20 of pub 4012 here: https://www.irs.gov/pub/irs-pdf/p4012.pdf

 

[rk911]

I read yesterday online and read n the WSJ this morning that IRS is considering a free online tax file option.

Would you continue to use your favorite software or use the IRS option ?

Would you continue to pay a pro to prepare and submit your return, if that is your practice today ?

We have far more confidence in private enterprise than in government (thinking back to the ObamaCare website rollout). So, yes, we'll continue to use either tax software (TT) or a tax pro (depending on our specific circumstances in that year).

 

[harley]

I'm not going with the IRS version unless I find out it's not written in COBOL like most of the rest of their systems.

 

[donheff]

I'm not going with the IRS version unless I find out it's not written in COBOL like most of the rest of their systems.

What the heck, the kids can use Visual COBOL. Lets face it, it isn't just the Feds, banks are chock full of legacy COBOL and I read that virtually all of our online financial transactions still depend on it for some components. It will still be hanging arond in dusty corners when our grandkids ER (unless AI can do it in).

About 23 years ago we were testing out commercial online auction systems for GSA Auctions. The possibilities were all endlessly expensive. The supporting legacy COBOL systems were running on a mainframe with room to spare and a good team who had been building Web based front ends to the old stuff. The team proposed building a mainframe based auctions system largely in COBOL that would replicate the functionality in the commercial systems for a fraction of the cost. I had to jump through and around architectural hoops before I could approve it but we finally built it on time and on (cheap) budget. It is still running at: gsaauctions.gov. Try it, you can get some weird junk. It's like browsing a funky government surplus store.

 

[Surewhitey]

They gotta spend that new budget somewhere, right? Government getting bigger is problematic, imo. Simplification of the system is the way to reduce costs, not this.

I'll try it, but I don't expect the first year to be "easy"... Like buying a new model car the first year.

 

[marko]

So, you spend your time and a few bucks doing your taxes via TT.

Later (maybe) the IRS comes back and says "no, you made a mistake, etc etc, our records show XYZ" or whatever. If they have all the information, why are they making me corroborate what they have?

I wonder what percentage of 'mistakes' does the IRS say "Oh, you're right, never mind" vs someone losing their case.

They already know what I owe, so why bother going through the hoops? The only variables are your deductions, so, just send in your deductions on a form and let them do the math!

 

[gauss]

Too many bugs that don't get fixed in the commercial tax software packages. I grew tired of switching from package to package year after year to find one that prepares a correct return.

This past year I went with IRS https://www.freefilefillableforms.com/
It allows you to efile for free, but you have to do all the calculations (except for the simple arithmetic) yourself.

My approach was to use a commerical package to take my first shot at it, and then enter the results in freefilefillableforms.com (adjusting for the bugs of course).

Much less stressfull knowing that I have a path forward to complete the taxes without trying to do workarounds or switching packages anymore.

-gauss

 

[MichaelB]

That report is interesting. They have apparently already built a functioning prototype system that allows non-programmers to configure the workflow for simple tax returns.

My own experience in software engineering and government contracting tells me they are underestimating the costs though. They think they can implement the VITA scope* and serve 25M people for $221M per year, but implementing something like TCJA (or its provisions ending in 2026) is going to blow that right out of the water. Not to mention all the mid-year changes we dealt with during the pandemic that couldn't be planned and budgeted for; even the mileage rate changed in the middle of 2022 requiring double entries.

*VITA scope can be found on pages 6-20 of pub 4012 here: https://www.irs.gov/pub/irs-pdf/p4012.pdf

Interesting and informative link, thanks for posting it. If all that - the VITA scope - is the objective of this IRS initiative I think you have a valid concern. I hope they narrow down the scope, at least for the first phase.

 

[RE2Boys]

So, you spend your time and a few bucks doing your taxes via TT.

Later (maybe) the IRS comes back and says "no, you made a mistake, etc etc, our records show XYZ" or whatever. If they have all the information, why are they making me corroborate what they have?

I wonder what percentage of 'mistakes' does the IRS say "Oh, you're right, never mind" vs someone losing their case.

They already know what I owe, so why bother going through the hoops? The only variables are your deductions, so, just send in your deductions on a form and let them do the math!

The IRS largely know your income, they don't know your expenses, deductions, adjustments (well some), or many of the credits you may be eligible for. You must supply that information. A couple of years ago they wanted to know why I did not report 529 plan earnings or eligibly for education tax credits. Had two sons in college, book expenses, apartment rental expenses, etc. Wrote a one page summary detailing the eligible 529 income, expenses, AOTC eligible expenses, reconciling all.
About 6 months later I received a letter saying all good, thanks.

Providing this information is exactly what you do when you file your own tax return. Oh, and the IRS probably doesn't know that your grandson lived with you for seven moths and you had daycare expenses last year!

 

[Midpack]

Later (maybe) the IRS comes back and says "no, you made a mistake, etc etc, our records show XYZ" or whatever. If they have all the information, why are they making me corroborate what they have?

I wonder what percentage of 'mistakes' does the IRS say "Oh, you're right, never mind" vs someone losing their case.

I'd be curious too. Purely anecdotal but the IRS has told me I was wrong twice (in 50 years), and both times they ultimately tacitly agreed they were wrong. They were wrong in 2019 and 2022...so maybe their error rate has worsened in the past few years? Would stand to reason as they are historically understaffed.

 

[ERD50]

The IRS largely know your income, they don't know your expenses, deductions, adjustments (well some), or many of the credits you may be eligible for. You must supply that information. A couple of years ago they wanted to know why I did not report 529 plan earnings or eligibly for education tax credits. Had two sons in college, book expenses, apartment rental expenses, etc. Wrote a one page summary detailing the eligible 529 income, expenses, AOTC eligible expenses, reconciling all.
About 6 months later I received a letter saying all good, thanks.

Providing this information is exactly what you do when you file your own tax return. Oh, and the IRS probably doesn't know that your grandson lived with you for seven moths and you had daycare expenses last year!

But they could send you the basics, and then ask if you accept it, or want to add deductible expenses (I think there were earlier posts saying this is what some countries do).

A lot fewer people itemize with the higher exemption and SALT limitations. I don't. The IRS knows everything I enter already, they got copies of it all. Some of it is from them (the stimulus checks).

PS: "A lot fewer" sure seems awkward wording, not sure how to say that better in an informal context.

-ERD50

 

[braumeister]

Purely anecdotal but the IRS has told me I was wrong twice (in 50 years), and both times they ultimately tacitly agreed they were wrong.

By coincidence, I've had exactly the same experience. Two "letter audits" and in both cases they had gotten it wrong. No harm, no foul.

 

[USGrant1962]

By coincidence, I've had exactly the same experience. Two "letter audits" and in both cases they had gotten it wrong. No harm, no foul.

Two here as well, one I explained away and the other I sent a small check. I'm waiting for two more where I know I missed something small, one from 2019 and one from 2020.

 

[skyking1]

I have used the free fillable tax forms from the IRS for years. One year I underpaid and they sent me a bill, this year I used the wrong rate on some capital gains and overpaid, and they sent me a check.
A great deal of the time was plugging in our W-2's and INTs and what have you. if that populates with what they have and all I need to do is a quick stare and compare, it will save me time and mistakes.
I can dyslexify anything.