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News and Views about Taxes

Should the government provide tax prep software for free?

with one comment

Chris Bergin at tax.com thinks so:

Since the government has provided its citizens this ridiculous income tax system whose purpose is to take our money, it seems to me the least the government can do is make the process easier.

The government should provide taxpayers with official tax preparation software at no cost. That will not only make things easier, but less “sleazier” as well.

Now, I work for H&R Block, but I’m not a blind apologist for the company. I get the concerns about eliminating a competitor and reducing to a duopoly in the field, and I get that it’s not a good thing for the industry going forward. However, Mr. Bergin’s proposed solution – to provide taxpayers with official tax prep software for free – has its own set of issues:

1. The IRS’s track record in software development is, to say the least, a mixed bag. The agency has been trying to modernize its own internal processing systems for a LONG time, and the target date moves out years at a time (from 2006, to 2012, to 2018-2020). It takes months for the IRS to get its own systems reprogrammed and ready for each year’s batch of tax changes. Now add the complexity of managing a large, no-cost tax preparation front end to what the IRS already has on its plate. Say this for the private companies – they are far better at churning out yearly updates than the IRS probably can ever be.

2. In addition to Federal tax preparation, you have state tax preparation. There are 43 states with income taxes, many of which are based off the Federal form. Who manages the integration of all of those separate entities into a free software base?

3. As a long-time software developer and quality assurance specialist, I understand that even the simplest-looking program on the surface can be extremely complex underneath, and that’s doubly true when the problem being solved – in this case tax preparation – is itself a complex issue. We get literally dozens of updates every week during tax season to our office software, and I am sure the online providers update theirs at least as often. I can imagine the uproar – although I don’t have to – if a program error in a government-supplied tax preparation package led to taxpayers getting mega-dollar refunds to which they were not entitled, especially if that error were NOT caught in a timely manner. The IRS is always under pressure for distributing refunds erroneously, and if the government took over the provision of tax prep software the probability – and visibility – of those errors would just increase the pressure on the agency.

I should note that the big online providers (and others) offer free filing to low-income taxpayers, and I don’t see that changing any time soon. (For information on free filing, check out the IRS Web Site) The IRS could, and maybe should, work with those companies to extend the Free File program to more taxpayers. But I think that asking the government to just step in and take over the tax prep software business kit and kaboodle will create more issues than it will address, and that’s not a headache the government needs right now.

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Written by nctaxpro

May 24, 2011 at 12:24 pm

One Response

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  1. The April 2011 report by the IRS Oversight Board noted “the tax administration system has two serious systemic weaknesses that require attention: the tax gap and IRS’ archaic information technology systems.” [http://www.treasury.gov/irsob/reports/2011/IRSOB%20Annual%20Report%202011.pdf at page 4] So, probably some time before the IRS can provide free and adequate tax prep software for all taxpayers. But Commissioner Shulman recently suggested moving to a system where prior to filing, the IRS would send individuals a form showing all of the information reporting data that had been filed with the IRS. Not a bad idea – Shulman is trying to let people know of this before they file rather than after they have filed.

    I think a basic tax data collection tool would be helpful if it were a standard item in all tax prep. H.R. 1058 proposes a new tax form for seniors – 1040SR. I don’t think we need one more form, but why have even the mix of forms today – why not have the common piece of software take your data and create a form based on it. If you are not a teacher, for example, your form won’t have the line for the teacher deduction. If you don’t have capital assets, no Schedule D info. I think this sounds like a better direction than a new tax form or a single tax prep tool. Instead, standardize the basic input and the form created which other tax prep software would then build upon and complete a return.

    Annette Nellen

    May 28, 2011 at 7:45 pm


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