BOB GARFIELD This is On The Media, I'm Bob Garfield. The New York Times revelations were but one part of, excuse the expression, a taxing week in the halls of power. While the Times was documenting Trump's huge write offs, the president was fighting on multiple fronts to keep the rest of his tax filings secret. The New York State Senate passed legislation on Wednesday to allow Trump's state tax returns, which should mirror federal filings to be turned over to Congress. And next week, a federal judge will hear arguments in a case over whether the House Oversight Committee can subpoena Trump's accounting firm Mazar's USA. But if you don't happen to be a besieged president with fancy accountants, please don't feel left out. Congress has been thinking about you too–with a piece of legislation called the Taxpayer First Act. It has sailed through the House with bipartisan support. A bill in Congress with bipartisan support and was poised to do the same in the Senate. It's practically unheard of. How in these fractious times could there be such cross the aisle comity? Yeah, yeah well--.
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MALE CORRESPONDENT A lot of people complaining that, despite the name, the Taxpayer First Act, this is really a way for H&R Block and TurboTax, which is owned by Intuit,who have lobbied hard to sort of maintain their duopoly on online tax filing. [END CLIP]
BOB GARFIELD That's because in the bill there's a provision that would have barred the IRS from ever offering an online platform to allow Americans to compute and file their taxes for free.
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MALE CORRESPONDENT The IRS currently has a memorandum of understanding with H&R Block and TurboTax that it will not offer its own online filing system, in exchanged for them offering free filing services to taxpayers who make less than sixty six thousand dollars a year. The bill is now awaiting a vote in the Senate. [END CLIP]
BOB GARFIELD Yes those private tax prep titans do offer a free service for eligible taxpayers but not so as you'd notice. Prospective users are so successfully diverted from the free service and toward paid services on these platforms that less than 2 percent of eligible taxpayers take advantage. This bill, which would preserve that status quo in amber, might be more accurately named the tax preparation industry upsell act.
DENNIS VENTRY Haha. Well, I hadn't thought of that. I wish I had.
BOB GARFIELD Dennis Ventry is a law professor at the University of California Davis where he specializes in tax policy. He spoke to us recently for a podcast only episode. Yeah, we release all kinds of extras on our podcast feed. And he guided us into the labyrinth of free file and its many trap doors. Take for instance Ventry's own student.
DENNIS VENTRY She had used free file last year, then again this year. She qualified by income. She only had about $15,000 worth of adjusted gross income. And when she got to inputting something about educational expenses, the particular provider software indicated that she needed to purchase a fee based upscale deluxe edition when she got to her very nominal small business income, same thing. 'Sorry you need to purchase a deluxe edition if you want to continue using us.'.
BOB GARFIELD And that's why only one point six percent of qualifying taxpayers free filed in 2018. But wait, there's more. As ProPublica recently reported, at least five of the for-profit tax preparers nominally offering free file were so eager for users not to take advantage. They embedded their websites with code to render the service invisible to Google and other search engines. That ProPublica reporting has inspired legal action. This week, the Los Angeles City Attorney Mike Feuer filed a lawsuit against H&R Block and Intuit as he told NBC.
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MIKE FEUER We allege that they have steered these low income tax payers into paying for services they should have gotten for free. [END CLIP]
BOB GARFIELD As recently as April 26, the IRS stood by free file as a quote 'successful program and partnership that's benefited millions of taxpayers.' But last week, the agency finally launched an investigation into the program. For a long time, Ventry says, 'the IRS had been unwilling to exercise such oversight or even curiosity at all.'
DENNIS VENTRY They can't answer the question why less than half of all taxpayers who use free file and are eligible to use it again the following year don't actually use the program. They don't take a more active role during filing season, actually going on and testing out the provider's software through mock returns and using different profiles of taxpayers to see how the software actually reacts. And if in fact that upselling is going on, the extent to which it's going on. And so one is left with the conclusion, maybe the conclusion that is reluctant–at least as far as I'm concerned, I'm very pro IRS. I'm a fan of the agency–is that they really just don't care about this program from the standpoint of providing that consumer taxpayer protection and they're much happier turning it over to private industry.
BOB GARFIELD I want to ask you about the whole notion of an online free system for filing particularly short form taxes. In theory, at least, that makes sense does it not?
DENNIS VENTRY In theory the--the arrangement, whereby private sector companies partner with the IRS or, for that matter, with a state tax agency and assist low income and middle income taxpayers, in theory that kind of partnership could work just fine. It's just as failed and it's not working. It doesn't mean that can't work, but this current system is not working. And so if we're going to put that permanently in the internal revenue code, it just doesn't make any sense.
BOB GARFIELD And another one of your reservations is that should this be enshrined in the U.S. tax code? It would erase the responsibility for the IRS and the various vendors to periodically examine how the program is working.
DENNIS VENTRY The IRS, as the federal agency that's charged with protecting taxpayers and upholding taxpayer rights, has, over the years, failed to provide sufficient oversight of the program. Notwithstanding calls for it to do so from, for instance, the National Taxpayer Advocate, consumer rights groups, the IRS Advisory Council and then independent researchers as well. It is definitely true that the IRS is not in a position, even if they wanted to, not in a position to create and administer the kind of program that it would take to replace the current free file program because of insufficient resources that Congress has given the IRS. I mean, indeed the budget since 2011 has been slashed by 16 percent as, you know, adjusted for inflation. But there's another component to this. And it's just that the IRS has become overly reliant on industry, just generally speaking, the tax filing services firms. And what I mean by that is the IRS needs these firms. They need private sector tax services firms to assist it in implementing new tax laws, in updating forms, updating new provisions like hurricane disaster relief provisions that might be enacted by Congress even mid-tax filing season. And most importantly, the IRS has partnered with the private sector in a partnership called the IRS security summit whereby the IRS state tax agencies and private sector services firms combat cybercrime and tax related identity theft. And it has been wildly successful. Indeed, such tax related identity theft is down about 25 percent. And so this partnership has gotten very cozy, so cozy that the IRS is very reluctant to disturb that at all.
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BOB GARFIELD The Free File Alliance is an industry group whose double speak name suggests the opposite of its goals. Led by for profit tax preparers like Intuit and H&R Block, it has showered money on Democrats and Republicans in Congress along to the very brink of getting its pet legislation passed in Congress. But a year ago, the last time this provision had sailed through the House and awaited action by the Senate, Dennis Ventry and his colleagues sprang into action.
DENNIS VENTRY I pulled together a bunch of folks that I know cared about this issue and we started reaching out to a handful of different Senate offices and going around and trying to educate them about the policymakers, the legislators, their staffs about how free file was a failed program that harmed taxpayers and that codifying it would be a significant problem. And part of that educational process involved publishing a couple op-eds. One that ran in The Hill and the other that ran in Politico and then a long piece that I published in a publication called Tax Notes, which is a sort of a leading tax policy journal that policymakers in Washington are very familiar with.
BOB GARFIELD And it worked. But then something else happened.
DENNIS VENTRY That's right. Within a week of those publications coming out, I received a public records act requests through the California Public Records Act from a law firm that was representing some requester. That requested it turns out was the Free File Alliance.
BOB GARFIELD The industry lobby.
DENNIS VENTRY The request asked for all of my materials in my possession including texts, e-mails, written documents, voice messages, etc, dating all the way back to January 1st of 2018 that had anything to do with the Free File Alliance. And also named individuals explicitly that they thought that I might have been in communication with including individuals that, but for their association with me, would never have been subject to such a request because they were private institutions and not at public institutions.
BOB GARFIELD One last thing Dennis, what's going to happen?
DENNIS VENTRY Well, that remains to be seen. This is like the most intimate relationship that you can have with the government, at least for the hundred fifty five million taxpayers who file every year. I mean, they don't interact with their federal government or any other agency the way that they interact with the IRS. It is an intimate kind of interaction. It happens every single year whether people want to or not. And to the extent that that can be improved upon, it seems like that's an important kind of pursuit.
BOB GARFIELD Dennis, Thank you.
DENNIS VENTRY Thank you Bob. I really appreciate it.
BOB GARFIELD Dennis Ventry is a law professor specializing in tax policy at the University of California Davis.
