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Problems with plans for the IRS to help taxpayers file returns

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No-cost help fulfilling our annual tax-filing obligations has always been a better slogan than a reality.

We are just about three weeks away from Tax Day 2022. This is our third consecutive coronavirus-tinge tax filing season, but things seem (fingers crossed!) to be going relatively well.

As of March 18, the Internal Revenue Service had received more than 72 million returns. Almost 70 million of those 1040s arrived electronically.

The IRS doesn't break out in its regular filing season statistics how many of the e-filings were submitted by users of its Free File option. That number, however, is likely to be down from the nearly 4.2 million taxpayers who used the free online tax preparation and e-filing programs available at IRS.gov during fiscal year 2020.

Free File cracks: Part of the reason for the expected Free File usage decrease is that the programs two biggest tax industry names no longer participate. H&R Block left in 2020, followed this filing season by the exit of Intuit's TurboTax.

Those defections from the Free File Alliance, the tax software manufacturers' group that's worked with the IRS for decades to help taxpayers prepare and file their tax returns at no cost, don't bode well for Free File.

The future of the well-intentioned filing program is the subject of this weekend's Saturday Shout Outs.

Uncertain future for program: First, Aravind Boddupalli elaborates in a recent post for the Urban-Brookings Tax Policy Center (TPC) blog TaxVox on The Uncertain Future of the IRS Free File Program.

Boddupalli, a TPC research associate, notes in his post that Free File, despite being around in some form since 2003, remains essentially invisible to the individuals for whom it was designed. That's despite regular and repeated efforts by the IRS and others (yes, that's me raising my blogging hand) to spread the word.

That's why, per a Treasury Inspector General for Tax Administration (TIGTA) report from February 2020 cited by Boddupalli, at least 14 million tax filers who were eligible for Free File in 2019 may have paid fees to commercial preparers instead.

Still struggling for answers: So what's the remedy?

A contingent of lawmakers and consumer advocacy groups has for years has urged the IRS to develop its own tax prep software and e-filing services. That's never made it very far. It likely won't in the near future either, as the IRS will have plenty of other issues, many created during the COVID-19 pandemic, it must focus on first.

There's also another obstacle, distrust of government in general that's expanded during our politically polarized times, and the specific enmity toward the IRS.

IRS dysfunction: Andrew Wilford, a policy analyst with the National Taxpayers Union Foundation, brings up suspicion of IRS intentions and abilities in today's second Saturday Shout Out.

Wilford, in his opinion piece for InsideSources.com entitled Dysfunctional IRS Can't Be Trusted to Pre-Fill Tax Forms, takes aim at proposals for the IRS to simply send millions of taxpayers with relatively uncomplicated taxes pre-filled tax forms based on the individuals' tax info the IRS already has and/or gets.

The thinking is that the taxpayers then would review the IRS-completed 1040s, make any necessary changes, sign the returns, and send them back to the IRS.

Wilford isn't buying it. "Putting the responsibility of calculating your taxes in the hands of the agency primarily responsible for extracting revenue creates an obvious conflict of interest. What’s more, the IRS’s calculations may cause taxpayers to miss out credits and deductions if it doesn’t know you qualify for them," he writes.

Lots of questions, few answers: So what's the answer? Both Free File and pre-filed returns do offer some, but not, all the solutions.

At the risk of muddying things more, I'd like to throw out one other idea.

How about Congress stop fiddling with the tax code for just a year and give us all — taxpayers, tax professionals, and the IRS — a chance to catch up!

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