On Jan. 27, 2020, tax-filing season will open. Approximately 155 million 1040 tax forms will be filed by families, not to mention the tens of millions of business tax returns and literally billions of information returns. For its part, the IRS will do its best to process all these tax returns, issue over $320 billion in refunds, and keep the massive operation flowing smoothly.
Like salmon returning to their hatcheries, this is also the time of year when very serious people write equally serious articles about how the IRS really ought to relieve people of the burden of filling out their own tax returns. As an IRS enrolled agent with nearly two decades of experience helping clients navigate the IRS every spring (and beyond, for the unlucky ones), I can tell you that this perennial idea is extremely unwise from both a practical and a political perspective.
Proponents of having the IRS prepare most tax returns have a good argument on the surface. Many other countries have “return-free” systems, most famously the United Kingdom’s PAYGO regime. Most Americans have very straightforward tax situations with W-2 income, the standard deduction (now claimed by 9 in 10 families thanks to the Tax Cuts and Jobs Act), and maybe some children. Technology has made processing all that information quick and easy, and there have been accusations of malfeasance on the part of tax software companies.
So why not just have the IRS prepare the tax return for Joe and Jane Taxpayer?
The simple answer is that the IRS cannot do so even if it wanted to, a truism obvious to those of us who deal with the IRS regularly but may not be to the layman. Congress seems to agree, which is why it passed H.R. 1957, the Taxpayer First Act of 2019, into law overwhelmingly and with bipartisan support — and why President Trump signed it. This bill is the largest overhaul of the IRS since the Taxpayer Bill of Rights Act in 1998. It deals with everything: identity theft (which is a huge problem the IRS is only beginning to come to grips with), lousy customer service, an opaque auditing and appeals process, an outdated computer network, and replacing IRS employees removed for misconduct. Clearly, the IRS is an agency in need of deep structural reforms and is not able to take on as gargantuan a project as preparing almost everyone’s taxes.
Then, there is the issue of IRS personnel and funding. According to an agency report issued earlier this month, the IRS has lost over 30,000 full-time employees since 2010. About 31% of the remaining 78,000 employees will retire in the next five years. The result is that the number of IRS audits is at its lowest level in decades — less than one-half of 1% of 1040s are audited, down from over 2% of all personal tax returns in 1980. IRS funding peaked in 2010 and has fallen by 20% since then, after adjusting for inflation. The IRS has to do more with less (not a bad thing in my estimation), but it certainly cannot add preparing over 100 million tax returns to its workload.
The Office of the National Taxpayer Advocate agrees. The in-house ombudsman of the IRS, this office produces annual reports on how the IRS is doing. The latest report focuses on inadequate taxpayer service, the budget and manpower issues, and the need for the IRS to focus on implementing the Taxpayer First Act.
Put all this together, and the picture that emerges is of an IRS barely able to hold it together as it is, much less positioned to radically increase its mission and scope to include preparing taxes for people. Right now, the IRS has to process, not prepare, approximately 2.8 billion (with a “b”) information reporting returns. That’s all the W-2s, 1099 income forms, 1098 deduction forms, 5498 retirement contribution forms, and K-1 owner forms for partnerships and S-corporations. Imagine this agency, the same one with manpower issues and that just got overhauled by Congress, also having to use these billions of forms to prepare people’s taxes and then deal with the resulting appeals, questions, etc.
None of this gets into the many reasons why the IRS should not prepare people’s taxes for them — that it’s a conflict of interest for the tax preparer to also be the tax collector, the fact that taxes can be done for free (or nearly for free) on smartphone apps by most people today, that liberals are only interested in doing this to the extent that it increases the amount of money going to the federal treasury, etc. Even if you don’t believe a word of the “shouldn’t” argument, you really can’t argue with the “cannot” arguments.
The IRS simply has no reasonable chance of being able to prepare 100 million tax returns every year. It cannot be done, and proponents ought to stop hand-waving away the very serious reasons why.
Ryan Ellis (@RyanLEllis) is president of the Center for a Free Economy.
