The biggest issue with Direct File is the conflict of interest created by having the government who benefits from your tax payment also prepare the return for you.
Given the massive amount of IRS shenanigans over the years, it is easy to imagine certain groups unfavored by the government conveniently being led to file returns that cause them to miss out on subsidies they are actually eligible for, or to pay higher taxes based on filing their return in correct but unfavorable ways resulting in higher tax payments than necessary.
This risk is particularly high given that the program was intended for and marketed to low income filers who typically rely on their tax preparer as an advocate to ensure their tax payment is as low as legally possible.
As other comments have mentioned, the program also exceeded statutory authority. Congress authorized the IRS to study a direct file system, not implement one on a permanent basis. It is a good thing when our government is restrained after it oversteps legal boundaries.
This is especially true in the case of this program because it was being intentionally implemented on a massive scale in order to make it politically unpopular to shut down. A program that allows 10% of all tax payers in 25 states is obviously much more than a study.
> The biggest issue with Direct File is the conflict of interest created by having the government who benefits from your tax payment also prepare the return for you.
The amount of distrust in the USA is truly bonkers. What about the conflict of interest for the tax preparers, actual companies with profit as a motive wanting nothing more than to pretend it's all complicated.
As the document says, the government prefilling your return is commonplace in many countries. And it actually makes sense when they already have the data. Less work for the taxpayer, fewer mistakes resulting in fewer cases in need of investigation. Everyone wins here...
> This risk is particularly high given that the program was intended for and marketed to low income filers who typically rely on their tax preparer as an advocate to ensure their tax payment is as low as legally possible.
Over 30% of returns don't even owe federal taxes [1]. So when they file, and get a $1000 credit, it's really crappy to then have to pay $100 or so of that to a tax preparer.
> to make it politically unpopular to shut down
So the government doing something people like is... Bad?
1: https://www.ntu.org/foundation/tax-page/who-doesnt-pay-incom...
Until you’ve had an IRS audit you truly can’t even imagine. I hope you never have a similar experience that knocks those rose tinted glasses off your head.
A buddy of mine took the home office deduction for a few years in the late 1990’s. He read the law and was in compliance with it. The IRS audited him and claimed he was not eligible. He lawyered up and spent thousands of dollars fighting it. He was ultimately successful, but his subsequent distrust of government was entirely merited.
Tax preparers at least have incentives to compete with each other on price and quality of service. They also often guarantee return accuracy. Tax law can be complicated and there are legitimate questions about how to treat certain kinds of income or expenses. These are questions you really don’t want the government making unilaterally.
And if you really hate tax preparers, you can always file a paper return for free using forms available from the post office, as my father and I do to this day. And honestly, if a taxpayer doesn’t owe federal taxes, submitting a paper form 1040 is the simplest route. Slap your W2 income on there and fill the rest out and you’re done. No fees, just a stamp and envelope.
A direct file system will inevitably morph into a black box where the government tells you an arbitrary tax liability amount and 99% of taxpayers just accept it at face value and pay it. You really see no problems with such a system?
Arguments of the form “everybody else is doing it, can’t be that bad” are not compelling, in my opinion. Slavery was common everywhere for a long time. I suppose that made it a good thing?
The government entrenches its power by implementing programs that hand out benefits at the cost of your liberty. Those benefits are always popular, and the loss of liberty is only realized after it is far to late to ever get it back.
But hey, the government claims people saved an average of $240 a year and 6 hours of tax preparation time because of this system. What a smashing success!
TLDR, this is not for you. No one is forcing you to use it. The people that did use it were apparently happy with it.
> Tax preparers at least have incentives to compete with each other on price and quality of service. They also often guarantee return accuracy.
> He lawyered up and spent thousands of dollars fighting it. He was ultimately successful, but his subsequent distrust of government was entirely merited.
So your friend filed himself, or his tax preparer didn't back him up?
The US tax code is very complicated and claiming deductions seems to be a national sport. I'm sure there are plenty of deductions taken that might not be illegal but questionable.
However, your example here wouldn't be what this service was aimed at to begin with. If the bottom 90% or so of filers can use this because their incomes are simple (paycheck, some savings, standard deduction) why would that need to be done by a tax preparer?
> You really see no problems with such a system?
I do not because it won't be a black box anymore than your tax preparer is a black box. Again, think of this as for the simple returns. If you claim standard deduction and have only a W2, it will only be a black box if you're unable to do the simplest of math.
> Arguments of the form “everybody else is doing it, can’t be that bad” are not compelling, in my opinion.
Counter argument being, if the rest of the world does it differently, shouldn't that mean there might be some reflection needed?
For your slavery example, that's why it's no longer a thing?
> The government entrenches its power by implementing programs that hand out benefits at the cost of your liberty. Those benefits are always popular, and the loss of liberty is only realized after it is far to late to ever get it back.
I'm going to make a guess that you've never lived outside of the US.
> But hey, the government claims people saved an average of $240 a year and 6 hours of tax preparation time because of this system. What a smashing success!
If it means that the lowest incomes now get their $1000 dollar credit and get to keep it, I think that's a lot of money for a lot of them.