The local weekend paper had a small column about the looming tax deadline, spent about 2/3 of it enumerating the benefits of e-filing, for the taxpayer and the tax receiver, with quotes from the head of the IRS office in the state. Well, for reasons I laid out in a letter to the editor I sent in response, I think the author missed the mark about the costs of e-filing. I elaborate:
...I'm not a luddite - I'm an engineer enamored with technology. I prefer to do my taxes using a computer. For the last several years, I have purchased mainstream tax preparation software to do them. Each software package out there (i.e., that runs locally on a computer, not via the internet) for preparing taxes that I have come across charges for e-filing, sometimes as much as $20 for each federal and each state return. This on top of the $20-$80 paid for the software itself. Balking at such extortion, I file my state and federal taxes by mail.
In each year I have used such software, my AGI has fallen below (sometimes well below) the cutoff that qualifies me for free e-filing. Yet, for all the intelligence programmed into this software, there is no possibility for me to e-file my returns for free - unless I ditch all the work I have done on my computer and move to an online service. One year I asked one of the software publishers why this was so. Their reply: if you have paid for software for doing your taxes, you probably won't mind paying for the convenience of e-filing. That doesn't seem very convenient for me! Another reply: if you are using software to prepare your taxes, it's probably because your returns are complicated enough, and your income high enough, that you wouldn't qualify for free e-filing anyway, so we don't bother checking. I present myself as an exception to the rule.
Free e-filing services that exist are almost exclusively online. Even if you accept that the connection between your computer and the online service's is encrypted from end-to-end, you are still entrusting incredible amounts of very sensitive personal data to some unknown entity's computers - something I refuse to do. I understand the data is retained on the company servers so that a user can pick up where they left off, even on a different computer. However, I feel that, like in so many places in society, personal protection and privacy has lost out to convenience and the illusion of security. In the terms-of-use for most of these online services, it is stipulated that the data they retain about you and your taxes becomes their property, not yours. Why would anyone want to cede control of such information? Although the $54,000 AGI cutoff for free e-filing encompasses the majority of taxpayers, most of these services will charge for returns that are in any way complicated by such things as investment income, itemized deductions, self-employment income, etc.
How did such a situation come about? Quite simply, it was a sweetheart deal for the tax service industry. The IRS, by law, is not allowed to directly compete with those who offer tax preparation services for a fee, which includes software publishers. The IRS is specifically forbidden to accept e-filings directly from individual taxpayers, regardless of how they are prepared, without having it first pass through a middleman, often for a fee.
For additional reading, I suggest an article by Damon Darlin that appeared in the NY Times on April 23, 2007, in the wake of the debacle of Intuit's tax processing servers slowing to a crawl just as the tax deadline loomed.
If the IRS (and state revenue departments) are serious about realizing the cost savings of having everyone adopt e-filing, they must also get serious about making it free and safe for everyone. Eliminate the for-profit middleman. Allow the IRS to accept e-filing returns from individual taxpayers directly. Require any software package certified for preparing taxes to offer free e-filing, regardless of income. Forbid online services from retaining personal information.
The tax service industry will wail on about the government undercutting their business, and rightly so. I'm not worried about the local accountant however - their personalized service will always be needed. The IRS is a part of the government, whose duty it is to serve the people's interest - not industry's. If the IRS wants to save money by having me e-file, they shouldn't require me to pay (either in money or security) for it.
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