American Consequences - April 2021

Maybe you’re wondering whether Congress is just behind the times, unaware that it can release us from tax preparation? Not true. As an expert on the U.S. tax system, I see America’s costly and time-consuming tax reporting system as a consequence of its relationship with the commercial tax preparation industry, which lobbies Congress to maintain the status quo. The United Kingdom is among dozens of countries that permit return-free filing for some taxpayers. Instead of 70% of Americans receiving free tax preparation, commercial companies whittle that percentage down to 3%. COMMERCIAL TAX PREPARATION Almost 20 years ago, Congress directed the IRS to provide low-income taxpayers with free tax preparation. The agency responded in 2002 with “Free File,” a public-private partnership between the government and the tax preparation industry. As part of the deal, the IRS agreed to not compete with the private sector in the free tax preparation market. In 2007, the House of Representatives rejected legislation to provide free government tax preparation. And in 2019, Congress tried to legally bar the IRS from ever providing free online tax preparation services. BEAST OF BURDEN

the IRS herding taxpayers to commercial tax preparation websites. The private part consists of those commercial entities diverting taxpayers toward costly alternatives. According to the Treasury Inspector General for Tax Administration, which oversees IRS activities, private partners use computer code to hide the free websites and take unsuspecting taxpayers to paid sites. Should a taxpayer discover a free preparation alternative, the private preparers impose various restrictions such as income or the use of various forms as an excuse to kick taxpayers back to paid preparation. Consequently, of the more than 100 million taxpayers eligible for free help, 35% end up paying for tax preparation and 60% never even visit the free websites. Instead of 70% of Americans receiving free tax preparation, commercial companies whittle that percentage down to 3%. TAX SAVINGS AND EVASION Perhaps you are guessing that there are valid policy justifications for avoiding government and empowering the private sector. Judge those arguments yourself. One argument from commercial tax preparers is that taxpayers will miss out on valuable tax savings if they rely on free government preparation. In fact, the government software would reflect the same laws used by the paid preparers with the same access to tax saving deductions or credits. Further, tax preparers like H&R

Only a public outcry turned the tide. The public part of Free File consists of


April 2021

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