The IRS will look into options to create a free tax filing system

SCOTT SIMON, HOST:

Not easy to understand the U.S. tax system. Millions of Americans rely on tax preparation software to help them file their returns. And this software can cost over a hundred dollars to file state and federal returns. But the Inflation Reduction Act, signed into law this week by President Biden, includes a provision that the IRS study ways to provide a free tax filing system. Justin Elliott is a reporter at ProPublica. He covers all matters taxes. Mr. Elliott, thanks very much for being back with us.

JUSTIN ELLIOTT: Good to be here.

SIMON: What does the new law say about what the IRS is required to do now?

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ELLIOTT: The new law says that they're giving the IRS $15 million to conduct a study that has to be done and returned to Congress in the next nine months. And the IRS has to study options for improving the tax filing system. The United States, unlike many other developed countries, does not offer a sort of free public option for preparing and filing your taxes. And this is the first time that there's really been significant movement in this direction since, really, the George W. Bush administration 20 years ago.

SIMON: What would be the problems for the IRS to try and provide what amounts to a tax filing service that's available to all taxpayers?

ELLIOTT: Well, obviously, it's a big administrative heave, but the kind of core paradox of how we do taxes in this country is when you fill out your tax return, you're actually, for the most part, putting in numbers that the IRS already has. So the idea is that the United States would be able to, at least for many people, pre-fill your tax return. This wouldn't work for people who have complicated taxes. Like, if you have your own business, things get much more complicated. But for tens and tens of millions of people, by some estimates 40- or 50% of the country, your taxes are actually relatively simple.

SIMON: The private tax preparation companies that offer this software for a price, I'm going to guess, cannot be enthusiastic about this.

ELLIOTT: That's right. And in fact, the reason historically why we don't have a system like this is that there is this very powerful and wealthy industry - companies like Intuit, which makes TurboTax, H&R Block. There's also the kind of storefront tax prep places that are common in poorer neighborhoods around the country. This is a very lucrative business. They make billions of dollars every year. And the industry has long opposed any effort to make it easier for people because, of course, that would cut out them as the intermediary.

SIMON: What about the argument that I think those private tax preparation companies often use that goes something like, yes, if you're satisfied with the standard government deduction, you can accept that and be happy, but we're experts, and we know how to get you perfectly legal deductions that you haven't thought about yet and that the government isn't going to help you find out about?

ELLIOTT: I think that there is some validity to that when you're talking about, for example, somebody that owns their own business where their tax liability's a potentially complicated thing - what is a legitimate expense, etc. But this is not just a matter of the billions of dollars that people pay to private companies to prepare their taxes. It's also a matter of time. There's been estimates that Americans spend over 2 billion hours per year preparing their taxes. So if you could reduce that number, I mean, that could make a big difference in people's lives.

SIMON: If the study that has been mandated ends up supporting a free file system, will that fly in Congress?

ELLIOTT: You know, it's an interesting question whether congressional action would actually be needed. I mean, the secretary of the Treasury, Janet Yellen, said recently that she supports changing the system and making it easier, but she didn't specify how. It's possible this is something the IRS could just sort of start to do on its own. But if there are moves in this direction, either by Congress or the IRS on its own, you're going to see a huge political fight. That's what we saw 20 years ago when the George W. Bush administration made some baby steps in this direction because there's a huge amount of money at stake. And so there's a lot of resources in Silicon Valley and elsewhere that you could expect to be deployed to fight this. So, you know, it'll be interesting to see what happens after the study comes out.

SIMON: Justin Elliott is a reporter at ProPublica. Thanks very much for being with us.

ELLIOTT: Thanks a lot. Transcript provided by NPR, Copyright NPR.