What is stopping us from filing directly with IRS or state?

The first, cynical, answer is "lobbying by Intuit."

However, I also think it totally reasonable for the IRS to want some gatekeeper/intermediary and not have every Tom, Dick, and Harry able to reach IRS computers from the internet.

Do you realize that if your income is low enough that many preparers and software companies (like TaxACT) will let you prepare and efile your return for free?

No you don't. You have the capability of sending them a PDF or something like that. Which the IRS would then have to print out and treat like a physical return.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

Think so? Try reading Pub 1346, which defines the records and protocols that the IRS wants to see from an electronic return filer.

If the IRS were to provide the service, it would likely be free to end users. However, it would cost money to develop, so it would be paid with through taxes -- maybe not on individual users, but certainly on the very rich. That's how most government services work anyway (except like the steep fees to become a citizen), but I'd rather resist over-rapid socialization of our economy. Also, the most well connected companies would get the contracts to do it, and they would probably charge way more than they do now.

You're free to use products other than Turbotax. Some are cheaper. Turbotax has a free version, but from their webpage it looks like it doesn't do all forms -- and state costs extra. Wow, how they've raised the prices since January!

alythough I could bone some picks on the subject. :=)

I do not believe that at all. My guess is that all the IRS needs is the form numbers and the data that goes into the boxes for the various line numbers. If they cannot do that, they need to hife better software developers.

If I were malicious, I could set up my computer to generate fake income tax returns and send in paper copies. Malicious digital returns would be detected much more quickly than paper returns. I do not know what IRS procedures are, but I would bet a buck that the paper return data is keyed in before checking SSN or anything like that.

Bill

Colorado has a direct website. I just did it yesterday. I had to type in four numbers from the W2 and two from my 1040 and it calculated the rest.

The federal has a free web service called Free Fileable Fillable Forms. It is operated by a 3rd party. The is no efiling charge or income ceiling. I find bugs in it every year.

You can efile thru TaxAct, much cheaper than Turbo Tax.

Last year I was thinking of using TasAct, but it was not Mac friendly. I do not know if this year is different.

Bill

I've e-filed directly through state websites in IL, KS, and MD, and I'm sure there are others.

I tried to use it for 2008 and gave up. It was more time consuming than doing it on paper, and I never could figure out how to get one thing in before I gave up and chucked the whole thing.

Phil Marti VITA/TCE Volunteer

The Colorado situation illustrates what a mathematician would call an "existence theorem," Just because it can be done does not mean that it will be done. As a California citizen, I want the FTB to do it. Not only does it make my life easier but it gives tax filers less of an excuse to not file.

Even when I use USPS to send in my return, I would be happy to put the information on a CD ROM. It makes no sense to me that I cannot send in a TurboTax file in the same format created by TurboTax to store on my computer. How many format translators would the IRS need to read 90$ or more of the files that would be submitted?

Intuit includes the cost of federal filing with its software. My objection is mainly that I do not want a third party, Intuit, to be privy to my financial situation. While Intuit is probably above board, it is just another party that I do not want to know that much about me. I don;t even want the IRS to know about me--but I do not have the choice.

Bill

When I used TaxAct.com's web site for my 2009 taxes recently, I noticed it seems to have removed the income restriction for filing federal taxes. I just checked again and I do not see any restrictions for filing for free through taxact.com.

I do not understand it. It seems to be some arbitrary Government restriction. Except for a signature, I do not see what would be different between filing a paper return submitted via USPS and sending a fax. The IRS already must have, or should have, computer fax reception available with character recognition software.

What would be the trouble or technical difficulty using a fax filing. There are better and cheaper ways than fax. Either way, a paper copy at the IRS IS NOT necessary.

It is stupid restrictions of the type I describe that lead to crazy conspiracy theories when the Government is involved.

Bill

That brings to mind the short lived 1040-PC form of about a decade ago. It consisted of a computer printed 8-1/2x11 sheet with just the form line numbers and amounts arranged in three columns and printed in Courier font. The theory was that the IRS would scan and apply OCR.

It no longer exists. Nor does tele-tax, where you could file your 1040-EZ return using your telephone keypad. Change does not come easily to massive computer systems operated by bureaucracies.

It is my understanding that the new modernized e-file system (MeF) is in limited operation this year for 1040 type returns. Among other things it will apparently accept .pdf attachments. Has anyone had any actual experience with MeF this season?

I don't think OCR software is at the point that it could digest hundreds of millions of pages and get all the numbers right and in the proper categories.

Additionally, having enough phone lines and fax machines (not to mention paper if it's used) to accept millions of tax returns would be expensive as well.

It seems to me, that every time IRS gets new computers, it gets more difficult for me to prepare my tax returns. The point I like to bring up is the OID burden. Just in order to get a little more tax earlier, one had to keep track for years. Before then, if you bought a bond at a premium or a discount, it was a one shot deal upon selling the bond.

A true simplification occurred when California tried to conform its tax code more in line with Federal tax code. Even so, it took a long time for me to figure out how to get TurboTax to enter Federal tax free income that is not California tax free. I still do not know if I was correct

Ultimately, the fault lies with Congress. They could create a simpler path to a prepared return. Instead, they want to tax to spend while giving favored classes their deductions.

I am not trying to get out of paying taxes. I just want my life simplified.

Bill

I threw in the fax possibility as the lowest tech approach to electronic filing. You do not need a fax machine to receive a fax. Before I had an all in one printer/fax/scanner, I would receive faxes on my computer using a modem. A PDF file, as someone mentioned here earlier,is provided by TurboTax or my printer.

All I hear here is reasons why it cannot be done, when it is obvious to me that it can be done.

Bill

One of the problems with designing a "simpler" system is deciding what is simpler. What may be simple to a teenager who spends a good deal of time on facebook may not be so simple to his grandmother.

There are now tax forms that MUST be filed on-line, for which there are no paper equivalents. That may be simple to you or me, but not to the treasurer of the VFW post who runs a 50-50 raffle twice a year and keeps his records in a spiral notebook.

My state stopped mailing out 1099-G forms this year to people who must report their state tax refunds on their federal return. They can "simply" get that information on-line. So far NONE of my clients have done that.

I do agree with your basic premise - there is no good technological reason why a system could not be designed that would allow individuals to electronically file their own returns. However there may be several good economical or practical reasons why development of such a system may not be the best use of our tax collection resources.

How expensive can it be to have a cheap computer with a terabyte drive using one or more modems with telephone lines receiving fax stored on the drive. At that point you have the same information as on a filled out tax form PLUS a signature of some kind. The forms can be printed, viewed on a screen, or even processed without being touched by human hands. My fax can send a page in about three seconds.

Bill

Well, this quickly gets a lot more expensive when you add in any sort of requirement for robustness and failure tolerance. What happens when the terabyte drive suffers a head crash? All of the received data is then wiped out, and everyone who filed through that computer doesn't have a return registered.

So, we need to start having something like a redundant RAID system with a backup mechanism, ideally one that goes off-site. But to do the off-site backup, you have to make sure you have a secure channel, since you wouldn't want to transmit stuff in the open across the internet (OK, that one is fairly easy to solve). But having the robustness setup is crucial, since you would otherwise be causing a lot of trouble for a large number of individuals -- people who you couldn't even necessarily contact because you had lost the record that they had even filed anything.

Now, that isn't to be said that improvements couldn't be made to the system. But to create a large, robust and scalable system is a lot more complicated and expensive than it would seem at first. Certainly the IRS has been trying (unsuccessfully) to upgrade their computers. Other federal agencies have also been running into problems with large computer system upgrades (FBI, for example). Even commercial companies like banks have difficulty sometimes managing to properly integrate computer systems when they perform acquisitions, so it isn't limited to just government. It is inherently difficult to come up with a good, solid design that is guaranteed to work correctly all the time. And that's what you really want to have for your tax filing and processing system.

I will assume that by no human hands, you mean that the entire file can be just viewed electronically. As opposed to being processed automatically by optical character recognition (OCR) software. OCR software is notoriously problematic, which would be even more the case when first passed through a faxing filter. A direct electronic connection using some standard format such as, for example, XML would be more robust.

OCR software typically has a correct recognition rate of somewhere in the 99.9%+ range on good, clean data. That sounds somewhat impressive until you start looking into the details. First of all, that correct recognition rate is based on character recognition, not document recognition. So, what that means is that about 1 in 1,000 characters will be recognized incorrectly. A typical page of text has about

And how many phone and fax lines would the IRS need in order to handle the surge in phone calls at 11:45pm on April 15th? Or do you just get a late penalty if you end up with a busy signal trying to call in on the deadline?

The problem is that it is a lot more expensive to come up with a large- scale, robust and reliable computer system. It will cost a lot more than what would be acceptable for a home machine.

This is certainly true. Although at various times there have been simplifications. I think the 1986 reform where special tax rates for different classes of income were abolished certainly qualified as a step in the right direction. This has since been incrementally undone, what with special breaks for capital gains and qualified dividends. So returning to the single rate system would be a nice simplification. It would also have the side effect of increasing revenue. [And any concerns about double taxation of dividends could be more simply solved by making them deductible on corporate tax returns.]

The presence of thresholds for some of the itemized deductions is also, in practice, a simplification because it means that a lot of the time one doesn't really have to keep track of certain expenses. For example, I normally don't need to bother tracking professional society membership dues because they don't come anywhere near the 2% of AGI level. So that simplifies my life.

Well, you can try to arrange for various ways to simplify it. For example, one could just avoid investing in bonds where OID is an issue. If one just went with fairly simple investments then life can be a lot simpler. The standard deduction is pretty simple as well.

The real thicket seems to come into play when there are various means needed to determine what is considered income and what isn't. And that isn't likely to be very easy to define away.