Would You Let the IRS Do Your Taxes?

Posted on 15. Apr, 2006 by in Taxes

income_tax_frustrastion.jpgI know that doing your taxes can be tough and sometimes you’re tempted to just throw in the towell and let someone else do it – but would you let the IRS do it for you?

The WSJ recently reported that last year, California launched a pilot program in which it filled out state-tax returns for about 11,500 residents. It plans to duplicate the program this year for 2005 tax returns. Of course taking such a program national would take a whole lot more money and effort – but it might do something to alleviate the tax burden of individual filers like you and I. The program seems like a natural fit – since the IRS has all of the information it needs already. Your employers, banks, etc. send in a copy of the applicable income-reporting forms to the IRS so the IRS would simply need to send you a pre-filled copy of your return which you could then review, sign, and return. Sounds like a good idea, right? I disagree – for a number of reasons:

  1. The IRS can kiss a significant portion of income goodbye. If the IRS were to send someone who received under-the-table earnings or tips a pre-filled form they would say to themselves, “This is all the IRS knows about? Great!” and that person wouldn’t report another cent.
  2. IRS employees make mistakes as it is – re-calculating your taxes for audit purposes and the likes. I would hate to see them make a mistake on my original form. But I guess they couldn’t shift the blame on me could they?
  3. Who would the IRS hire to complete these forms? And how much would they pay them? I’m assuming most of the work would be done by computers, but I’d like to see a cost-benefit analysis to see what this new way of paying taxes is going to “cost” the American people. The California pilot project, called “Ready Return,” cost about $211,000 to run last year, and involved returns for only 11,500 people. Doing some quick math that amounts to a little more than $18 per person – a total of about $4.6 billion.
  4. The biggest reason I’m against this program is because it’s a short-term solution to a long-term problem. If taxes are too complicated and take too long to calculate for the “normal” American then maybe that should be a clue that the tax system should be reformed and the volumes of tax code re-written. But maybe that just makes too much sense…

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