Ah, Tax Day — a time when our relationship with the United States government can get a little strained. That’s in part because the U.S. system for filing taxes can feel pretty antiquated.
But now the Internal Revenue Service has a plan to improve that, thanks to an additional $80 billion from the Inflation Reduction Act the agency will receive over the next decade.
Marketplace’s Meghan McCarty Carino spoke with ProPublica reporter Paul Kiel about what those IRS technology improvements might look like. Kiel said some of the most effective upgrades would be relatively easy to implement.
An edited transcript of their conversation is below.
Paul Kiel: There’s a lot of information that the IRS has that could make filing taxes much easier for people. For instance, the W-2 form that shows what your wages are or forms from your bank showing how much interest income you got from your savings account. Those forms go to the IRS because it’s supposed to help them administer taxes to make sure that people are not omitting income. That information could also help taxpayers when they’re filing. Imagine a world where you go to file taxes and all that information automatically fills into a system for filing your taxes online. That is a goal that the IRS has, and it’s something that should have been done years ago. On the scale of tech challenges, this is not Mount Everest. This is something that was doable a long time ago.
Meghan McCarty Carino: Historically, the IRS has had this public-private partnership to offer software for free filing. What’s the status of that partnership?
Kiel: That was a compromise that basically entailed the IRS saying they would not build a free tax-filing service as long as you, the industry — like Intuit and other companies like H&R Block — agreed to build something that lower-income people could use to file for free. That was called the Free File program. It was supposed to be available to more than half of taxpayers and up to 70% of taxpayers over time, but the program never worked, and it never reached more than a slim percentage of people who are eligible for it. Essentially, it came out that the industry was purposely kind of downplaying the program and so that agreement has fallen apart. Now, here we are today, where Congress has given the IRS this money to study whether can this be done, how much would it cost and how it would work if the government was to build something through which a lot of people could file for free through a government program.
McCarty Carino: What would be the larger benefit of these kinds of tech upgrades?
Kiel: There’s a recent study by economists, including some in Treasury and the Federal Reserve, that found that 60 to 70 million people qualify and could file for free. These are lower-income people who oftentimes end up going to these street-corner tax-prep places and pay $200 or $300 for something that really should be free. So that’s a massive benefit for tens of millions of people.
McCarty Carino: Why is the IRS so behind on these technical systems?
Kiel: If you just take it at face value, Congress has been cutting the budget. The IRS is a political punching bag because it sort of works as a stand-in for paying taxes in general. It’s not our most popular government agency. So, there’s been a lot of berating the IRS for being antiquated, but at the same time, the budget has not been there for them to make needed upgrades.
Related links: More insight from Meghan McCarty Carino
Paul Kiel was part of the reporting team at ProPublica that exposed how TurboTax — the most popular tax-filing software — was essentially hiding its free tax-filing system by using a deceptive design known as dark patterns. As a result of that investigation, Intuit, the maker of TurboTax, agreed last year to pay a settlement of $141 million — or $90 each — to the legions of people who were tricked into paying for TurboTax when they qualified for free service.
We’ve been talking for years now about the complicated relationship the IRS has with private tax preparers. In 2017, my former Marketplace colleague Scott Tong reported on the long history of our complicated tax-filing system. A lot of the issues have not changed since then.
And last year on the show, we discussed another IRS attempt to modernize its system that didn’t exactly pan out. The agency partnered with a software company called ID.me that offered facial-recognition verification for taxpayers who wanted to access their accounts online.
The IRS ended up canceling those plans after an uproar by the public over privacy concerns.
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