April 15 is the official deadline for taxpayers to submit their tax returns, barring an extension.
For millions of Americans, Tax Day signals an end (or beginning) to weeks of stress and cursing the federal government for making things such a pain.
As described by journalist Alex Mayyasi in a 2017 piece for Pricenomics, filing your taxes is needlessly complicated and described the process through the lens of paying your credit card bill.
“Each month, Visa would send you a blank form. The form would instruct you to gather all your receipts, write down every purchase you had made, and calculate the total amount you owed Visa,” Mayyasi writes. “After you sent in your bill, Visa would check its records. If you’d forgotten a receipt and underpaid, Visa would fine you. If you’d made a big enough mistake, you’d go to jail.”
But why does it have to be that way?
In many other countries, filing your tax return is exceedingly simple. The government already knows how much you owe or are due and, aside from writing down your deductions, it could theoretically send you a bill or cut you a check without much hassle.
So if the government wanted to, it could fill out your tax return automatically. So why don’t they?
In short, according to economists, the powerful tax-filing companies you see advertising on TV are fighting behind the scenes to keep the process hard.
According to Beverly Moran, professor emeritus of law at Vanderbilt University, companies like H&R Block and Intuit, makers of TurboTax, have lobbied the federal government for decades in an effort to preserve their business model and protect their financial interests.
The biggest scandal these companies have faced thus far involves a truly free-to-file system they had agreed to build that would benefit the majority of Americans.
In 2002, the Federal Government worked with those companies to create “Free File,” a system that would help millions of Americans file their taxes free of charge with no hidden fees. The companies would handle the software and filing services in exchange for a promise from the government that the IRS wouldn’t launch its own competing service and jeopardize their businesses.
It was an important concession for the tax preparing companies, because if the U.S. instituted similar solutions that other wealthy countries use for filing taxes, their entire business model could become obsolete, economists said.
The vow from the government was more than enough to justify building a free-to-file program.
But years later, an explosive report from ProPublica found that not only did Intuit and H&R Block not promote its free service, they may have even intentionally made it harder for consumers to find.
Intuit in particular was accused of deliberately using code on its website to hide links to its free-file service from search engine results. Both companies were also accused of calling their paid services “free,” luring in consumers and then hitting them with surprise charges or upselling them to their paid products.
Those tactics, experts say, may have prevented the program from becoming more successful.
In 2019, then-Los Angeles City Attorney Mike Feuer filed a lawsuit against H&R Block and Intuit, alleging that the companies actively discouraged consumers from using the available free-file systems.
“We allege that’s no accident,” Feuer told the Los Angeles Times. “Both Intuit and H&R Block have created impediments to the IRS system.”
TurboTax and H&R Block have since left the Free File program.
Years later, a breakthrough was made for those in favor of simpler and cheaper returns.
This year, millions of Americans in 12 states who have “simple tax situations” can file their return for free directly with the IRS through a new program called DirectFile. The tax filing tool was launched as part of the Biden Administration’s landmark Inflation Reduction Act, which was passed in 2022.
That program, however, is only a pilot and hasn’t been launched nationwide. It doesn’t automatically fill out your forms like some systems in other countries do; you still have to input information like you would if you’d used one of the paid services. It also doesn’t provide the option of filing your state taxes simultaneously.
While this new system is truly free, it isn’t necessarily easier, some argue. There still isn’t a program that handles the tedious job of filling out your tax forms for you, even though the government already has all that info.
In 2006, an economist who would later work for President Barack Obama once suggested a “simple return” system that would send taxpayers their already completed forms that they would simply have to review. It would save taxpayers more than $2 billion per year, the economist said.
According to Moran, even President Ronald Reagan in 1985 suggested a system in which taxpayers wouldn’t have to fill out a return ever again.
But little progress has been made from deploying something like that nationwide. In 2007, the U.S. House of Representatives rejected a free government-run system to prepare taxes for all taxpayers. Twelve years later, Congress unsuccessfully tried to prevent the IRS from ever offering a free online tax prep service.
DirectFile is the first major step toward easier and free returns handled by the government, and even with its limitations, the IRS stresses that the program will get better and more robust as time goes on and more states adopt it.
Imperfect or not, the existence of a government-supported tax filing tool presents an existential new threat to the bottom lines of the big tax preparing companies and they’re already on the offensive.
A spokesperson for Intuit described DirectFile as “a thinly veiled scheme where billions of taxpayer dollars will be unnecessarily used to pay for something already completely free of charge today,” in a statement provided to OpenSecrets.org, a nonpartisan nonprofit organization that tracks money spent in U.S. politics.
OpenSecrets said the tax prep industry spent more than $93 million on federal lobbying since the original Free File Program was launched, more than half of it spent by Intuit. In 2023, Intuit spent more than $3 million alone on lobbying, the most in its history, the organization said.
The organization also found that the more these tax preparing companies spent on lobbying, the more their revenue rose, although it did not state that the two were directly related.
It’s not the first time the tax preparing companies have gone after government competitors.
At one point, California had its own program called ReadyReturn that sent pre-populated tax forms to thousands of taxpayers so they could file returns directly with the California Franchise Tax Board.
Intuit sued after the ReadyReturn website launched. After a few years, in which users voiced near-unanimous approval of the program, ReadyReturn was discontinued and some of its features folded into a similar system used today called CalFile.
CalFile still offers free filing services, but only some of the information is pre-populated, meaning most users will still have to enter much of the information that the government already knows. CalFile has also faced its own attacks from lobbyists.
As Propublica notes, companies like H&R Block and Intuit need to go after competitors because it is in their best interests to protect their industry; an industry that the publication says is on a “shaky foundation, one that could collapse overnight if the U.S. government did what most wealthy countries did long ago and made tax filing simple and free for most citizens.”
