Brooke Gladstone: Last week, the company Intuit got into a little trouble with the law.
Reporter: The Federal Trade Commission is suing Intuit, the company behind TurboTax. At issue is the company's claim to offer free tax preparation products. The FTC calls that claim misleading because most people are not able to use the free products being offered.
Brooke Gladstone: Like the 99 Cents Stores, once you involve taxes nothing seems to cost as little as advertised, but perhaps the true crime here is that people can file taxes for free, but nobody seems to know it. Every year around this time, that is to say tax time, messages pop up in our Twitter feed referring to a story we did a few years back on tax filing, it's become something of a PSA. Why? Because filing taxes is a fraught business. It makes sense we'd turn to our saviors, companies like Intuit or H&R Block who say they're more than ready to step in, save the day, save us money, and simplify our lives.
Advert: Your life is busy, growing we might say it has layers. That means tax complexity, we get it and we are honest.
Jessica Huseman: [laughs] They do get how complex the tax system is because their business model is based on it staying that way.
Brooke Gladstone: Jessica Huseman, editorial director of Votebeat says that when tax prep companies aren't helping you through our overwhelming tax systems, firms like Intuit, which makes TurboTax, spend heaps of cash to ensure that it stays sufficiently overwhelming.
Jessica Huseman: Last year, Intuit spent almost $2.5 million lobbying. The H&R Block spent more than $3 million and they're also spending money giving direct donations.
Brooke Gladstone: What is it like doing taxes right now?
Jessica Huseman: I'll just tell you how I do my taxes and maybe that will be representative, because I don't think that I'm very good at it. I keep all of my documents in a pink shoebox, and I stuff them in there all year long, couple of weeks before April 15th, I sign up for one of these paid tax services. I meticulously go through all of my returns from the company that I work for, from any freelance work that I might have done, and I take all of the receipts that I've also saved. I spread them all out over the floor and I add those up and I try to figure out which box I should type these numbers into and it takes hours.
In the entire time, I have this sick feeling in my stomach that I've lost a return or maybe I'm being too generous with how much I've spent on my business all year long, and then I hit send and hope for the best. It could be so much easier than that.
Brooke Gladstone: How could it be better?
Jessica Huseman: Think about all the things the IRS already knows about you. Your bank is already giving them information as to how much money you have and where that money is coming from. Your employer is also giving them information as to how much they are paying you.
In a lot of European countries, tax authorities use that information that they already have and send you a slip saying, "This is how much we think that you owe." You can either say, "Yes, that's correct," sign it off, send a check back with it, or you can use your own tax preparation service to do your taxes yourself.
Brooke Gladstone: If they say you owe us $3,000 and you say, wait a minute, I have spent more on my business beyond the standard deduction, so you can just add that additional information to their prefilled out return?
Jessica Huseman: Right. The only thing that this return-free system would do would be the IRS telling you everything it already knows about you and making a best estimate as to how much it thinks that you owe. It would be great if I knew what the IRS knew about me, there's a lot of power in that. A lot of people might, in fact, be able to take advantage of such a system. If the IRS isn't aware of some income that you might have, maybe you just don't say anything.
Brooke Gladstone: Not that you're advocating this.
Jessica Huseman: Not that I'm advocating this. Everybody should file their taxes.
Brooke Gladstone: If it's so simple for most of us, why do we turn to companies like H&R Block?
Jessica Huseman: Because the federal government is presently barred from offering its own system like that. They have signed a contract with the Free File Alliance. The Free File Alliance is a group of 13 private for-profit tax preparation companies to provide the majority of Americans with a free system of doing their taxes. Free filing is supposed to be available to 70% of the tax-paying public. In exchange for these companies offering a free product, the government says, "All right, we will not offer a free product ourselves."
The problem is that nobody knows that this system exists because the IRS's budget for marketing this system is zero dollars and the tax preparation companies have no incentive for you to use their free products instead of their paid-for products. Last year, less than 2% of the people who paid taxes did so through the free file system, even though it's supposed to be available to 70% of the tax-paying public.
Brooke Gladstone: Intuit has been quite frank in its quarterly statements by saying, "We don't want this prefill system because it'll hurt our bottom line." That's not in their commercials?
Jessica Huseman: No, it's not in their commercials. They, in fact, are for things that would make the existing system easier for you, less boxes for you to fill out. They do lobby for bills that would simplify the tax system in that way. The ultimate way that they could make the tax system easy is if the government were to offer a system of return-free filing, which they are inherently opposed to.
Brooke Gladstone: There have been bills on both sides of this issue, where do they stand now, and what do you think is likely to happen?
Jessica Huseman: Last year in April, there were two bills that were proposed within days of each other. One in the Senate, some Democrats sponsored a bill that would have created the system of return-free filing to simplify your taxes. In the House, a bipartisan bill would make permanent the system of Free File Alliance.
Both of those bills died in committee. The Free File Alliance agreement expires in 2020 and so before then, we would either have to renew that agreement, make it permanent, or replace it entirely with this system of return-free filing.
Brooke Gladstone: You've mentioned that anti-tax libertarians like Grover Norquist side with the tax prep companies. It would seem to me that simplifying filling out your taxes would be at least theoretically more up his alley?
Jessica Huseman: When folks like Grover Norquist talk about this system, they are talking point. The talking point that the Free File Alliance uses is that it is an inherent conflict of interest for the person you are paying your taxes to to also tell you how much you owe. That it wouldn't be in the IRS's interest to offer up all of the deductions that you might qualify for. They might exaggerate how much you owe.
Brooke Gladstone: I think part of the problem is that most people think you can't fight the IRS.
Jessica Huseman: Right, but there are a couple of problems with that argument. First and most obviously, they leave out the fact that it is an entirely voluntary system. You get to tell them if you disagree with that number. Then also, I think something that gets left out of this conversation is that there are hundreds of thousands of people every year that don't file their taxes at all and thus don't qualify to get a return.
The IRS has hundreds of millions of dollars that are unclaimed from people who didn't file their taxes and thus paid too much. They could get money back, but they just never filed their taxes, to begin with.
Brooke Gladstone: When you hear ads from tax prep companies like the one we played at the top of the interview, can you imagine sort of an alternate text that would be closer to the truth?
Jessica Huseman: It would be great if their commercial said something like, "We are for making your taxes easier as long as we have to do them for you." It kind of boggles the mind. Like what they're actually advocating is that they want to make their software simpler to use. They want you to be less annoyed when you're using their software, but what they don't want to happen is a system that's so simple that you don't need their tax software at all. They want to simplify it, but not too much. Your taxes could take minutes to do instead of days or hours, and they want to keep it at hours instead of minutes.
Brooke Gladstone: Thank you so much, Jessica.
Jessica Huseman: Yes, no problem.
Brooke Gladstone: Jessica Huseman is a reporting fellow at ProPublica.
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