Why Free Tax Preparation Is So Hard To Find

It’s tax season. After two years of delayed deadlines, the tax deadline has been pushed back to April this year, on Monday April 18 – just after Good Friday and Passover.

It doesn’t matter if you filed early or if you will be filing closer to the deadline, you probably know that filing taxes can be a hassle.

IRS estimates show that it takes the average non-business filer nine hours to prepare their tax return, with an average tax preparation of $160.

It is a system that raises questions, to say the least. The IRS usually has all the information you file, and the current tax filing system matches it to their numbers for you.

Why is all this so difficult? It’s part of a cycle driven mostly by lobbying from big tax preparation services, and the tax code is complicated.

ProPublica reports found that tax preparation companies spent millions lobbying Congress to avoid simplifying the tax code and filing. Every day, people filing their taxes will throw up their hands in frustration and pay for their services.

At the same time, tax advocates — mostly conservative groups who want to fuel opposition to taxation — have pushed to defund the government, especially the IRS, and elect lawmakers who will and keep people mad at the tax system. An underfunded IRS struggles to perform its duties, especially when the tax code keeps getting more complicated.

So, at the moment, we’re stuck in the clutches of a system that drives many people to use paid tax preparation services.

But what might a more widespread, more accessible and free solution look like?

The IRS has a system called Free File, available on its website. It is open to any individual or family earning $73,000 or less. The agency estimates that Free File is available to around 70% of filers, but actual usage is low.

Data from the IRS showed that in 2020, more than 148 million individual tax returns were filed online. Of these 148 million, just over four million – less than 3% – actually used Free File.

But while the IRS may allow you to submit for free, getting outside help to figure out the multitude of forms you need can be more expensive. It’s built into software like TurboTax, but the IRS can’t offer similar services. As part of the deal, the agency struck with tax preparers when it created Free File in the early 2000s.

The IRS has a list of providers that offer free tax preparation help if you meet specific qualifications, but the system is full of hurdles and each site has its own set of requirements.

Providers may try to direct you to paid programs or force you to take one if you get certain tax credits. If you try to find help yourself using a search engine, you may also find services that are very similar to those of the Free File program, but this is not the case.

And that may even confuse the experts.

Beverly Moran is Emeritus Professor of Tax Law at Vanderbilt University. She has written six books and dozens of articles on the tax system and tax reporting issues. She puts her expertise to work, helping people file their taxes to find problems with the process, and even she’s come up against an impostor.

“I went to one of these sites that weren’t through the IRS website but appeared to be through the IRS website, and went through the whole process, filled out the return, then I was told I owed $29,” Moran said. “Well, that’s ridiculous. So I called the company and they said, ‘Oh, well, the person you were making this claim for is eligible for the earned income credit. Whenever there is a credit, this program requires payment. It seems to me that virtually everyone who is eligible for this software, for this free software, was going to be eligible for the earned income tax credit. So they all should have paid.”

As a quick explanation here, the earned income tax credit is a government benefit for low-income people issued through the tax code. Estimates show that one in five workers who qualify don’t even apply.

“When I finally got to the IRS website and found another supplier on the IRS website, I realized that the original supplier who had wanted to charge had given up a credit of $1,400,” Moran said.

Another potential solution to the problem is deposit without return. The government would calculate your taxes for you using all of your W-2 and tax forms, and then you could either accept the result or provide proof that you would have to pay less or get more back.

California piloted its version of this approach with favorable feedback from registrants. Joe Bankman, a law professor at Stanford University, helped create the system.

“They know your salary because your employer has already reported it to them,” Bankman said. “So in California, we took that information and we sent a pilot group a completed statement, and we also made it available online. And we said, based on what we know and what you declared last year about your marital status, how many children you have, and so on, here is what your declaration will look like, if it is correct, click correct, submit.

But it didn’t last long. California Republicans alleged the software could cost taxpayers money if it didn’t always maximize deductions. And, of course, we have to mention that Intuit – the California-based maker of TurboTax – spent over a million dollars lobbying lawmakers as Ready Return started to take off.

So Bankman fought back, contributing $35,000 of his own money to lobby state lawmakers to promote the no-return system. He also defended it to members of Congress.

“When I went to California to try to fight, I was like, ‘Well, there’s only 120 lawmakers. I’m going to talk to all of them,” Bankman said. “I found out that to do that I had to hire a lobbyist because I just couldn’t handle the details or get the meetings. In Congress when I went, now there are over 500, and what I found everywhere I went was that Intuit had gone before me. They had already met all the representatives I was going to meet.

So the current system lives on, and its complicated setup means that many people who need help won’t get it.

Face-to-face help at IRS offices is mostly limited to appointments only due to COVID.

The National Taxpayer Advocate, an internal IRS watchdog, found that less than 10% of calls made by individuals to the IRS are answered during peak tax season, and that number includes calls from any duration.

The current tax system is profitable for many people, but it is also very frustrating for many Americans who have no choice but to participate in it.

“You can imagine that if you’re not too literate and you’re not too good at counting, maybe English isn’t your first language. It’s a huge burden,” said Bankman.

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