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Tax Day mystery: In Internet era, why can't you just file free online?

Pro Publica and NPR looked at lobbying history to explain a mystery: In the age of online forms that can calculate anything, why can't all U.S. taxpayers file online for free?

It's long been a mystery to anyone who recognizes the power of computer algorithms and online data forms: Why can't U.S. taxpayers simply calculate their taxes online and file directly with the IRS for free? Taxpayers in other countries do so. Presidents of both parties have backed the concept.

The answer, according to a 2013 report by Pro Publica and NPR, mostly boils down to one factor: lobbying.  And in a report as relevant today as it was two years ago, the nonprofit investigative-journalism organizations largely blame Intuit, maker of the popular (and sometimes problematic) TurboTax tax-prep software, along with anti-tax activist Grover Norquist and a dose of anti-government ideology:

Intuit has spent about $11.5 million on federal lobbying in the past five years — more than Apple or Amazon. Although the lobbying spans a range of issues, Intuit's disclosures pointedly note that the company "opposes IRS government tax preparation."

The disclosures show that Intuit as recently as 2011 lobbied on two bills, both of which died, that would have allowed many taxpayers to file pre-filled returns for free. The company also lobbied on bills in 2007 and 2011 that would have barred the Treasury Department, which includes the IRS, from initiating return-free filing.

Intuit argues that allowing the IRS to act as a tax preparer could result in taxpayers paying more money. It is also a member of the Computer & Communications Industry Association (CCIA), which sponsors a "STOP IRS TAKEOVER" campaign and a website calling return-free filing a "massive expansion of the U.S. government through a big government program."

In an emailed statement, Intuit spokeswoman Julie Miller said, "Like many other companies, Intuit actively participates in the political process." Return-free programs curtail citizen participation in the tax process, she said, and also have "implications for accuracy and fairness in taxation." ...

In its latest annual report filed with the Securities and Exchange Commission, however, Intuit also says that free government tax preparation presents a risk to its business.

Roughly 25 million Americans used TurboTax last year [2012], and a recent GAO analysis said the software accounted for more than half of individual returns filed electronically. TurboTax products and services made up 35 percent of Intuit's $4.2 billion in total revenues last year. Versions of TurboTax for individuals and small businesses range in price from free to $150.

(H&R Block, whose tax filing product H&R Block At Home competes with TurboTax, declined to discuss return-free filing with ProPublica. The company's disclosure forms state that it also has lobbied on at least one bill related to return-free filing.)

Would free online filing be a power grab by the government?

"It's voluntary," Austan Goolsbee, who served as the chief economist for the President's Economic Recovery Advisory Board, told ProPublica. "If you don't trust the government, you don't have to do it."

Goolsbee has written in favor of the idea and published the estimate of $2 billion in saved preparation costs in a 2006 paper that also said return-free "could significantly reduce the time lag in resolving disputes and accelerate the time to receive a refund."

Other advocates point out that the IRS would be doing essentially the same work it does now. The agency would simply share its tax calculation before a taxpayer files rather than afterward when it checks a return.

"When you make an appointment for a car to get serviced, the service history is all there. Since the IRS already has all that info anyway, it's not a big challenge to put it in a format where we could see it," said Paul Caron, a tax professor at University of Cincinnati College of Law. "For a big slice of the population, that's 100 percent of what's on their tax return."

Taxpayers would have three options when they receive a pre-filled return: accept it as is; make adjustments, say to filing status or income; or reject it and file a return by other means.

"I've been shocked as a tax person and citizen that this hasn't happened by now," Caron said.

No doubt, much more than lobbying and ideology explain the resistance, which continues long after Pro Publica and NPR shined a light on it.  Widespread free-filing, though not likely to interest the upper reaches of the income and wealth scales, would probably lure away some business from every kind of tax preparer - including CPAs.  Some of that has already happened via the IRS's Free File system - a Bush-era compromise with the tax-prep industry that this year makes free online filing available to taxpayers with less than $60,000 in 2014 income.

Lobbyists and their ideological allies can drag their feet and slow down the process, but eventually, the tax-prep industry will face the same full-bore Internet-era disruption that has upended other industries.  The IRS already has your personal information. It sets the rules and designs the forms telling you what to add and subtract, and it will be processing your return once you file.

On Tax Day 2015, it's again worth asking: Why not just eliminate the middleman, allow straightforward online filing directly to the IRS, and save taxpayers billions of dollars in fees and millions of hours of work?