The tax preparation industry claims that current efforts to create a government-run system that would allow eligible Americans to file their taxes for free could be prohibitively expensive. But a new report reveals that the potential cost of such a free-file program could be less than the total tax subsidies scored last year by the biggest player in an industry that reaps billions from people using services that could be free.
In effect, government tax credits are subsidizing Intuit’s fight against a direct-file system that would let Americans avoid paying for the company’s tax filing services. In October, the Internal Revenue Service (IRS) announced it would pilot its free Direct File platform for select taxpayers in thirteen states during the 2024 tax season — potentially delivering a final blow to a twenty-year agreement with the tax preparation industry that prohibited the IRS from effectively becoming a competitor. That’s assuming Congress doesn’t eliminate funding for the free tax filing program as part of its new military aid bill for Israel, as Republicans have proposed.
In return for the IRS not launching its own e-filing product, private tax prep companies like Intuit and H&R Block were required to provide access to free filing services for qualified taxpayers. But only 3 percent of eligible taxpayers utilized these free services, largely due to roadblocks set up by companies that forced people into paying for their products instead. Both companies ended up pulling out of the free IRS program in recent years.
These deceptive strategies and hurdles have proven to be lucrative for the industry. In 2019, at least fourteen million Americans paid for tax prep services that should have been free, according to a Treasury Department audit spurred by a ProPublica investigation. This earned the industry around $1 billion in revenue.
The White House and Congress recently agreed to claw back more than $20 billion earmarked for the Internal Revenue Service. This deal was, ostensibly, part of a grand bargain to reduce budget deficits.
Unfortunately, it’s likely tohave the opposite effect. Every dollar available for auditing taxpayers generates many times that amount for government coffers — and the rate of return is especially astonishing for audits of the wealthiest Americans, according to new research shared exclusively with The Post.
A team of researchers at Harvard University, the University of Sydney and the Treasury Department examined internal IRS data for approximately 710,000 in-person audits from 2010 to 2014. Here’s what they found:
Wealthy people generally have more complex tax returns, so auditing them costs more. Internal government records show that the IRS employees auditing the rich earn higher wages and spend much more time per audit; overhead costs add up, too.
Now here’s the revenue collected per audit, from additional taxes, penalties and interest. The differential for low- vs. high-income taxpayers is even bigger.
This means that while the upfront costs of auditing the wealthy are usually higher — perhaps suggesting these taxpayers aren’t worth going after — the average return on investment is much better.
Opinion by Catherine Rampell and graphics by Youyou Zhou
I drank the bespoke pathogenic cocktail as part of what’s known as a “human challenge study” run by the Center for Vaccine Development at the University of Maryland, Baltimore. In a human challenge study, adult volunteers are exposed to a pathogen. The study I was involved in was intended to test an experimental vaccine. The process may sound somewhat medieval, but these studies are critical scientific tools that prioritize participant safety. From 1980 to 2021, over 15,000 volunteers have been exposed to one of dozens of diseases in such studies, and not one has died.
Dysentery can be fatal. While Shigella is treatable with antibiotics, resistance is evolving at a worrying pace, and tens of thousands of children still succumb to it every year in the developing world. Those it does not kill are often left with stunted growth.
For my assistance in the development of a potentially lifesaving vaccine, I was paid $7,350. My motivations were altruistic to a degree: I wanted to pay my privilege forward. As I told Business Insider, however, I am not a complete saint and would not have done it for free.
As far as the Internal Revenue Service (IRS) is concerned, the compensation for my bout of dysentery has zero charitable component; it’s just regular old income, indistinguishable from, say, freelance writing or mowing lawns. If, God forbid, I am ever audited, I hope the IRS agent believes me when I say that’s just my diarrhea money.
I maintain, though, that I should not be taxed on that $7,350 at all: Treating clinical trial compensation as taxable income is just bad policy.
Millions of taxpayers were asked to delay filing their 2022 tax returns after questions arose over whether or not specific rebates should be included as taxable income, and now the Internal Revenue Service has given their answer.
The IRS said in a press release that “in the interest of sound tax administration,” residents in most states, including Illinois, will not be required to report rebates on their federal tax returns, and that filing of those returns can continue.
There were limited exceptions, including Alaska’s Permanent Fund Dividend, but for the most part all states that were included in the original notice will not require their taxpayers to report the rebates as income.
Illinois was included in a large group of states whose residents were advised to potentially delay filing their taxes after questions arose about the reporting of rebates given to taxpayers and property owners.
Those rebates, passed as part of the state’s fiscal year 2023 budget, were given to individuals who made less than $200,000, or couples who made less than $400,000. Those rebates returned $50 to each taxpayer.
Property tax rebates of up to $300 were also made available as part of the program.
Under the new IRS guidance, those payments are considered to be “general welfare” payouts, and therefore are not subject to federal income taxation.
Hedge fund billionaire Ken Griffin, who founded and helms trading powerhouse Citadel, has sued the Internal Revenue Service and Treasury Department for alleged negligence in maintaining safeguards for confidential tax returns after a bombshell report last year cited a trove of IRS data in a series of articles detailing the incomes and taxes paid by some of the world’s richest people.
In a federal suit filed with the Southern District of Florida, Griffin alleged the IRS has “willfully and intentionally” failed to establish adequate safeguards to protect confidential tax return information after nonprofit news outlet ProPublica published an article citing the data in June 2021 and then followed up with several pieces, including some targeting Griffin’s political lobbying.
The suit, first reported by Wall Street Journal, claims the disclosure of Griffin’s tax return information to ProPublica was not “requested by the taxpayer,” and as a result entitles the billionaire to punitive damages totaling at least $1,000 per unlawful disclosure and attorneys’ fees, according to a section of the tax code.
It is a felony for a federal employee to leak a tax return or information about a tax return, but the source of the data remains unknown despite some lawmakers claiming there “is little doubt” the confidential information “came from inside the IRS;” the IRS and Justice Department have stated they are investigating the leak, but no formal charges have been filed.
Maybach is unpaid, a volunteer among a cadre organized by Faith in Action in Red Wing, a nonprofit that relies on retirees to ferry residents to essential services.
The riders, mostly seniors, are people who don’t have immediate access to transportation, especially in rural areas where public transit options are either limited or nonexistent.
There are several such programs serving rural counties in Minnesota, but, as with other services across the country, their existence has become precarious because the number of volunteer drivers has steadily declined, according to transportation advocates. Volunteers either get to a point where, because of age, they can no longer drive, or the costs associated with their volunteerism are no longer sustainable. For decades, Congress has refused to increase the rate at which the drivers’ expenses can be reimbursed.
Experts say that with public transit in rural areas already insufficient and the long distances that residents in rural communities must travel to access health care, a decimated volunteer driver network would leave seniors with even fewer transportation options and could interrupt their health management. Already, social service organizations that rely on volunteers have begun to restrict their service options and deny ride requests when drivers aren’t available.
Volunteers, like Maybach, are eligible for a reimbursement of 14 cents per mile, which generally doesn’t come close to covering the cost of gas and wear and tear on a vehicle. And while the Internal Revenue Service increased the business rate from 58.5 cents per mile to 62.5 cents per mile in June, it did not raise the charitable rate because it is under Congress’ purview and must be set by statute. The charitable rate was last changed in 1997.
When the Biden administration expanded the Child Tax Credit in 2021 with direct cash payments of up to $3,600 to alleviate child poverty, millions of the most vulnerable families never received the automatic payments because they didn’t have a digital connection with the Internal Revenue Service through a previous income tax filing online. The burden was on those families to seek out the public benefit.
To boost awareness, the government launched a messaging campaign to let families know that up to $3,600 a year was waiting for them. But months later, millions of dollars were still unclaimed.
A new study led by Wharton marketing professor Wendy De La Rosa pinpoints the reason why so many Americans left money on the table: The large amount seemed like an abstraction because people don’t think about money on a yearly basis. Through a series of experiments, the researchers found that people were more likely to collect the money if it was conveyed as a monthly or weekly amount — $300 or $69 — similar to how they budget.
Montana health officials are proposing to oversee and set standards for the charitable contributions that nonprofit hospitals make in their communities each year to justify their access to millions of dollars in tax exemptions.
The proposal is part of a package of legislation that the state Department of Public Health and Human Services will ask lawmakers to approve when they convene in January. It comes two years after a state audit called on the department to play more of a watchdog role and nine months after a KHN investigation found some of Montana’s wealthiest hospitals lag behind state and national averages in community giving.
The IRS requires nonprofit hospitals to tally what they spend to “promote health” to benefit “the community as a whole.” How hospitals count such contributions to justify their tax exemptions is opaque and varies widely. National researchers who study community benefits have called for tightening standards for what counts toward the requirement.
U.S. households that earn upward of $200,000 a year can have a significant impact when they move between states, despite their relatively small numbers, according to a recent analysis by SmartAsset. In 2020, these tax filers comprised 6.8% of total tax returns filed across the 50 States and the District of Columbia.
High-earning households’ influence is so great because a state that loses more of them than it gains in a given year may experience a decline in tax revenues and its fiscal situation may worsen.
As part of its analysis, SmartAsset identified the states with the most movement of high-earning households. Researchers examined the inflow and outflow of tax filers making at least $200,000 in each state and the District of Columbia between 2019 and 2020.
The result is that the IRS’s prolific enforcement capabilities — which bring in on average better than $10 in revenue for every $1 spent pursuing audits — are often trained on the most economically vulnerable taxpayers.
More than half of the agency’s audits in 2021 were directed at taxpayers with incomes less than $75,000, according to IRS data. More than 4 in 10 of its audits targeted recipients of the earned income tax credit, one of the country’s main anti-poverty measures.
Congress and the White House, when led by Republicans, have starved the IRS of resources for so long, experts say, that even with an influx of $80 billion in new funding, the agency’s ability to transform itself is far from assured.
Some of its main computers still run on programming language that dates to the 1960s, called COBOL, the IRS has repeatedly told policymakers. The program is so old that college computer science courses rarely teach it anymore, forcing the IRS to spend heavily on training new hires in antiquated systems.
The IRS has 60 discrete case management systems that do not communicate with one another.
Its staffing levels have dropped by 17 percent since 2010, including a 30 percent decline in enforcement employees, because its budget has flatlined: Adjusted for inflation, its annual appropriation from Congress is down 12 percent over the same span, at $12.6 billion this year.
The Internal Revenue Service this week released more troubling data for New York, with the federal agency showing more high-earning taxpayers leaving the state.
Tracking returns filed in 2019 and 2020 showed that 479,826 people left New York for another state or country in those years. Over the same timeframe, just 231,439 people moved to the state. That means the state suffered a net loss of 248,387 residents.
And, of course, those people took their money with them. The IRS figures show the moves generated an economic exodus of more than $19.5 billion.
New Jersey and Florida were the biggest beneficiaries. More than 84,500 people moved from New York to New Jersey and took $5.3 billion. By contrast, only 37,127 New Jersey residents moved to New York and brought $2.2 billion in income.
Wirepoints, in its analysis, noted New York suffered the worst net loss of income of any state, with the $19.5 billion representing a 2.5 percent decline in adjusted gross income.
The Internal Revenue Service issued Tuesday a revised Fact Sheet and frequently asked questions on the 2021 child tax credit and advance child tax credit to help eligible families properly claim the credit when they prepare and file their 2021 tax return.
Tax expert Ed Slott of Ed Slott & Co. told ThinkAdvisor on Tuesday in an email that the child tax credit situation this year is “a mess! Some people may end up paying a tax pro more than the credit!”
Others, Slott said, “may still pay a tax pro only to end up returning money they already received. Advance payments can always be tricky when it’s time to reconcile.”