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Why the IRS Should Automatically Fill In Returns With What It Knows
theodp writes "An article in the NY Times begins, 'In the digital age, filing income tax returns should be a snap. Important data from employers and financial institutions has already been sent to government computers. Yet taxpayers are still required to perform the chore of preparing a return from scratch, in many cases paying a software company for the privilege.' Why, if your needs are simple, can't you just download forms pre-filled with whatever data the IRS has received about you, make any necessary adjustments, and automatically get the IRS calculation of your taxes? Sounds reasonable, but the IRS rejected the President's proposal to give taxpayers the option to do so as 'not feasible at this time' due to delays in the receipt of W-2 and 1099 data. However, California managed to offer a pre-filled state tax return, which cost only 34 cents to process compared to $2.59 to process a traditional paper return. Despite the success of the pilot, meager funds have been allotted for the program due to the strength of its political opponents — 'principally, Intuit' — according to the state controller. Intuit argues it would be a 'conflict of interest for government to be both tax collector and tax preparer.'"
In Finland you get a pre-filled tax sheet in the mail, you only have to return it if there are any changes you need to make. I'm currently living in the US, I find the amount of crap you need to go through to get your affairs in order absolutely stunning.
pre-filled tax forms that you only have to sign and return have worked well here in Sweden for years, no conflict of interest at all. A couple of years ago, they even started with an SMS option, where you just can "ok" your pre filled tax form with an SMS code.
If you want to add information, you can just fill in your own form and send it in, but I think its pretty common to just use the pre-filled tax form.
http://www.intellipool.se/ - Intellipool Network Monitor
Here in Norway, if you feel you have nothing to add, you don't even have to return the papers. Just sit back and relax. I've never had to fill out anything.
I'm gonna be famous, tell everyone!
And, um, PS: before you go dissing fairtax.org, *actually read their site*; there are several flat-federal-tax proposals out there, some of which *are* snake oil. Theirs does not appear to be, to me.
I don't have a problem with that. You can't save everyone. The amount of efficiency in the average case would be so great, though, that overall I suspect it would offer more money to both the government AND the taxpayer.
E pluribus unum
If there is an error in favor of the individual, if it's significant, the IRS may bring on an audit. If you catch the mistake after you file, your amended return gets more scrutiny and you have a higher chance of audit. I wouldn't sleep soundly if I knew there was an error and just let it slide because it gave me a couple extra bucks. Basically, if there is an error it needs to be fixed, you don't just want to sleep on it and go "well at least this worked out in my favor". As far as people being duped into what they owe. There could be a very simple summary provided, along with the pre-filled forms. "You made X, so you are in this tax bracket, so we need this much money and you paid this much money, so this is how much you get back or you owe". If the values don't jive, then people can review the actual forms or take it to a professional to review. Even professional tax preparers mess up & the individual may not know it at all, so I don't see much danger with a pre-filled tax form. Frankly Intuit & the like make too much money on what basically amounts to a couple data entry boxes & a macro that pre-fills forms w/ simple mathematics. That'll be $49.95 please, let's not get started on the B&M places that like to charge $100+ so you can have a human go to the website for you.
Here in the UK, most people pay tax through the PAYE (Pay-As-You-Earn) scheme. The only people who regularly don't are the self-employed.
This means that the majority of the working population NEVER need to file tax returns.
However, some people do regularly file tax returns -
1. People asked to do so through random audit
2. If you are considered a 'high-rate' taxpayer (meaning you earn more than about £36,000pa).
But, you can elect to file a tax return even if you earn less than the 'high-rate', and you can often get some money back for overpayments.
I still can't believe the amount of hassle you have to go through in the US each year when it comes to tax-time.
-Nano.
It's a conflict of interest for the clerk at Wal-Mart to tell me how much I owe AND collect my money?
The real conflict of interest is for corporations to give money to election campaigns.
The root cause of this is that corporations have too much power in our system. Corporations buy politicians and they buy court verdicts. It's just wrong, and we need to fix the system, starting with the "golden rule".
In court, make the richer party pay for both lawyers, and eliminate corporate contributions for political campaigns and ballot measures. Then maybe the PEOPLE can run this country.
http://www.opensecrets.org/orgs/all_summary.php?id=D000026667&nid=3868
Intuit Inc
Rank: 598th
2008 total combined contributions: $818,259
2008 federal-level contributions: $394,475
2008 state-level contributions: $423,784
That's a pretty good return on the dollar.
If you get the advice IN WRITING (I think this means dead trees), you can escape penalties and criminal sanctions. You're still on the hook for interest and taxes.
Almost every year about this time I post some sort of rant about how wasteful it is that we don't even have a free, official online tax-filing website. It would save filers tons of time, it would save the IRS tons of money. But the tax preparers don't care about that (after all, $1 of intentional government inefficiency is 25 cents of income for them) and somehow, though I can't figure out how, this tiny special interest has the power to dictate government policy.
It's not exactly "official", as you have to go to a third party, but you can file online free. I worked as a tax preparer one year, and from my experience, the reason most clients chose $tax_service instead of doing it themselves (paper or online) wasn't because they couldn't, but because $tax_service offered refund anticipation loans. Which means they get a check for several thousand, less a couple hundred in fees, the next day, rather than waiting a week or more for direct deposit of the full refund.
Getting your taxes right is your responsibility. The IRS can send you a suggestion, and for some significant percentage of the population, the IRS will get it right.
Would they get me right? No, probably not. They don't know the cost basis for my stock sales, and they don't know when I bought those stocks, so they don't know short-term vs. long-term capital gain/loss.
Anyone who can do a 1040EZ shouldn't have to do anything.
The preferred solution is to not have a problem.
I completely forgot about this. Last year Turbo Tax let me fill out my taxes based on my company. All I did is select my company from a list and it auto-filled all of my data and I checked it over.
California decided that I should pay taxes on all my income as a California resident when I wasn't one. I moved back to CA towards the end of a year and got a job, and they decided I had made all that money in California as a resident when I wasn't one, and hadn't. The W-2s told the whole story, though. They had all the information to know better. I just need to re-file now, but I've been putting it off because I intend to hand a bunch of stuff to an accountant all at once "real soon now" and since I'm consulting, no one is trying to garnish my wages.
"You're right," Fisheye says. "I should have set it on 'whip' or 'chop.'"
Just got a pop-up from Quicken 2007 telling me that it will cease down-loading data from my bank at the end of April. If I want to keep being able to do this, then I'll have to upgrade to Quicken 2010.
This is the second time that Intuit have made an incompatible change to the download data format (at least while I've been using it). So I'm going to assume that their business plan now includes a forced upgrade every three or so years. Time to start researching non-evil alternatives.
I suggest you actually read the fair tax site. The fair tax provides a prebate check for taxes paid up to the poverty line, so the poor pay NO TAXES for spending on basic necessities. Used items are also not taxed.
Try reading what it is before commenting.
Setting his threshold to 5, Sparky eliminated most of the trolls on /.
When Ed Foster was still alive, each year his GripeLog would rate the most abusive software companies in the United States. Microsoft was usually first, of course, but once Intuit was rated the most abusive.
The U.S. government is so corrupt that it amazes and scares me. Anything for those who want to make money using the power of government. When Saudis attack, invade Iraq? When Intuit wants something, use any foolish excuse to give it? Put a 6 times higher percentage of the population in prison as any European country? All part of U.S. government corruption.
I'm sorry, but the US is the only country in the world I have ever heard of where it is a regular thing for people to claim refunds as if it is a normal thing to do.
I can't talk about local government workers because their pay varies so much from place to place. However, Federal workers are paid much more than the private sector and are much less productive. One in five Federal workers makes more than 100K a year, and the average pay for all Federal workers is 75K. Add to that one of the best retirement plans known to man and some of the best medical insurance a person can find. And they're damned near impossible to fire for incompetence!
Methinks we're not getting all that we pay for, and would be better off if MORE were done by the private sector.
I think you know little of how waiters work then. They already don't declare their tips fully.
True but if they don't declare at least 8% of their sales as tip income it will almost certainly trigger an audit. This information is required to be reported on form 4070 and the IRS knows there is a high propensity to cheat.
You mean you wish the IRS provided a service that they started providing last year? Despite the some what sketchy looking design, this it the site that the IRS provides for free online submittable forms: https://www.freefilefillableforms.com/FFA/Gateway.htm
Yes, you're not seeing the huge problem, but it definitely exists. I'm a professional tax preparer as one of my trades. This year, I have done or assisted on over 50 EIC forms so far for people in the range where Earned Income Credit applies and every single one of them has triggered additional IRS mandated questions, usually three or more per case. Questions such as "You are claiming a child under six - who takes care of that child while you are at work?" or "Your self employed income form shows less than typical expenses - have you accounted for all schedule C related expenses?"
I'm not even focused in that area, rather I do mostly corporate and a ultra-specialization involving royalties received by estates of deceased authors. I see these EIC cases mostly only because I instruct 2nd and 3 year preparers who have to deal with them.
Answering these sort of questions means being able to say, for example, "In home daycare conducted during evening to midnight shift hours produces few food and drink expenses compared to the daytime hour equivalent and does not normally require the taxpayer placing their vehicle into business service. These factors make business expenses low." I really can't see most of these clients claiming successfully that they are familiar enough with overall small business trends and average expensing issues that they could make that claim for a legal record, even if they somehow knew it applied to them.
By what we are seeing this early in the tax season, the government has a very great deal it doesn't know, it wants to know it all, and if you are an average lower income filer claiming the Earned Income Credit and you do it via a free online service, your chance of being audited this year just jumped from less than 0.5% to about 7%, possibly higher. In my worst nightmare interpretation of what I'm seeing, the government is emplacing all the preparatory mechanisms needed to declare 5 or 6 million poor people felons by about next November, although a lot of politicans and IRS administrators are assuring people the response is going to be a lot more reasonable than that.
The IRS was originally told to focus on EIC fraud specifically by the 2004 congress, and it's just now really ramping up. At that time, EIC fraud was rated as second to business form fraud, at about 1/4 of the total damages to the tax base for business fraud. People can argue about why the congress in that year demanded renewed focus on the less serious source of fraud rather than the greater one, but that's not why I bring this up. Simply, the government now needs money more seriously than before, and escalating efforts to detect the number one type of fraud are an obvious way to close the tax gap, so even if the IRS is not doing this to small business filers yet, it will very likely come next year or 2012 at the latest.
There's a similar problem for people claiming the 1st time homebuyer's credit, in that the IRS has repeatedly revised the filing requirements to get more documentation, to where now the taxpayer will probably have to provide at least five additional documents to file the credit correctly. Taxpayers may have to wait until they have updated both their driver's liscence and vehicle registration to reflect the new address, and get a certificate stating the home is safe for occupancy on top of the deed and mortgage documents. I'm wondering right now what happens if the taxpayer doesn't drive, and has bought a previously occupied home, where the state doesn't normally do a habitability inspection. It seems likely at least some people who bought a home based on this credit will have a very hard time getting all the forms the IRS now wants.
By the way, for the situations such as you describe in your post, there's a major downside. For example, if the government has records that show you sold stock, they will consider it equally authoritative that you had zero basis
Who is John Cabal?
The proposed change prevents a taxpayer from being dishonest (by informing him of what the IRS already knows of his finances), and only gives him a chance to correct the records.
The proposed system doesn't prevent a taxpayer from being dishonest: it makes it easier, because it informs the taxpayer of exactly which details the IRS is aware, and which they are unaware.
It facilitates the taxpayer knowing what the IRS is unaware of, and thus assists the taxpayer in hiding money in future years..
If the taxpayer is not presented with the info, then they have to be sure to report everything to really be certain they won't be caught red-handed.
Probably the real 'big bad guys' such as insiders at the IRS, criminal orgs, etc, already know major blindspots, where they can elude dtection.
If the IRS always reported everything it knew to the taxpayer... they'd lose a big part of their edge, they'd be opening up insight into the extent of info they get to the general public, resulting in opening up illegal tax fraud to the commoners, instead of just large entities with lots of money....
The biggest reason for refunds is the Earned Income Credit. it's a replacement for older welfare systems, and it means there are fewer incentives to not work and just drift on welfare. (fewer, not none). Most US poor are either working or legally disabled. While the EIC isn't all that well implemented, it's probably better for the country as a whole than the system which preceeded it.
The second biggest reason for refunds is people don't try to adjust their withholding so as not to give the government a free loan until they file. Some people actually regard withholding as the only way they can save a large sum each year, which is really saying they lack the discipline to open a savings account with that money instead. It's normal in the US for essentially the same reasons not planning for retirement or not having rainy day savings is pretty normal in the US too.
Who is John Cabal?