Congress Slaps TurboTax Right In The Dick, For America
Congress is running away in shame and taking back a very big gift to the very profitable tax preparation industry, thanks to public opposition following a tenacious investigation by ProPublica. The series showed, in outrageous detail, the big tax prep companies doing all they could to steer taxpayers away from software the companies had agreed to provide for free. In April, the House passed the "Taxpayer First Act," which would make permanent the "Free File" arrangement that currently sends taxpayers to use private companies' "free" tax software -- which they then won't let you use but shunt you off to the paid version. But the bill stalled in the Senate, so now the Free File section will be stripped out of a new version of the bill, which still "contains a range of provisions including restrictions on the private debt collection of unpaid taxes," so hooray for real consumer protection.
Under the Free File program, the industry promises to offer a no-fee option to most Americans and in return the IRS pledges not to develop its own free, online filing service. Such an IRS program would threaten the industry's profits. Only a small percentage of eligible Americans use the Free File options, and many are instead steered to paid products by the industry.
The new bill, without the Free File provision, could be introduced today and voted on in the House as soon as next week, according to Politico. The bill's Republican sponsor in the Senate, Sen. Chuck Grassley, told Bloomberg, "In order to get it through the Senate, we have to" drop the Free File provision. Rep. John Lewis, the bill's Democratic sponsor in the House, told Tax Notes that the updated legislation is expected soon.
As ProPublica reported in April, Intuit, the manufacturer of TurboTax, really wanted a permanent ban on the IRS ever developing its own tools to help taxpayers file for free, because that would be bad for profits. Problem is, as ProPublica also showed, Intuit also makes getting to its free product very difficult, and despite extensive advertising and promotions loudly touting the ability to file for "FREE", those ads take people to the paid version. That's some catch!
The IRS said in May that it was launching an internal review of the program, following our stories on how Intuit, H & R Block and other companies deliberately hid their Free File editions from search engines, making it harder for taxpayers to find them. In addition, New York state launched an investigation and lawsuits were filed on behalf of customers. Intuit has said it is cooperating with the New York probe.
In its story on the removal of the Free File provision from the Taxpayer First Act, ProPublica notes, "A spokesman for Intuit, which spent $2.6 million last year lobbying on Free File and other issues, declined to comment." Intuit will no doubt insist, yet again, that Free File is a perfectly wonderful thing, since anyone with an annual income under $66,000 can file for free -- that's about 70 percent of taxpayers. Of course, the industry makes far less noise about the percentage of those who actually do file for free: only about 1.6 percent. That percentage has been shrinking for years, and It doesn't help that the IRS budget for promoting Free File is exactly ZERO.
The existing Free File program will remain in its current form: not a law, but a formal legal agreement between the IRS and the tax prep software companies. That memorandum of understanding is scheduled to expire in 2021, and wouldn't it be awfully nice if a consumer advocate like President Elizabeth Warren had a House and Senate majority, because of course Warren has some ideas about what might work a hell of a lot better.
You see, in 2016, Elizabeth Warren and Bernie Sanders cosponsored a bill that would have mandated the IRS estimate people's simple returns for them automatically, since it already has our wage information anyway. Taxpayers could then either sign off on the IRS calculation or have the option of using free, IRS-developed software to pay their taxes. For-profit outfits would no longer be the default option, and if we could replace some of the members of Congress who keep doing favors for the industry, wouldn't that be a fine thing?
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