A small victory for ordinary taxpayers

California’s Franchise Tax Board recently approved a permanent Ready Return program, which provides fully filled-out tax returns for taxpayers with simple returns. Although the program was wildly popular with taxpayers who used it, Intuit, makers of Turbotax and chief lobbying force against free on-line filing, had lobbied the legislature to end the program.

Intuit took a well-deserved hit on this issue after it poured $1 million into a campaign against John Chiang (D), recently elected Controller and a current member of the FTB, who supports Ready Return and free on-line filing. Intuit has also spent hundreds of thousands of dollars in a lobbying effort (hiring the same firm that represents big tobacco) to eliminate the CalFile program, which allows taxpayers to go on-line and file their state income taxes without going through private sector filers like Intuit and HR Block. They even promoted a bill which said that any on-line filing system would not be allowed to perform arithmetic and tax-table look-up functions!

Fortunately, and unlike at the federal level, California and many other states continue to have free on-line filing, in which taxpayers can fill out their information, the program calculates the tax or refund, and the return is sent electronically. Ready Return takes that a step further: it says to the taxpayer, here’s the information we have, is it correct? If so, send it back, either electronically or through the mail, and your taxes are done. 96% of taxpayers who used the system were highly positive about it.

Meanwhile, as previous blogs and Taxpayer Advocate Nina Olson have noted, the federal “Free File Alliance” program continues to be a mess. It’s not free if your income is over a certain unspecified level, it charges to file state taxes as well, and often charges for “upgrades”—that is usable programs rather than the minimal, unusable programs offered for free.

A small step by the new Democratic Congress could require the IRS to move to direct on-line filing, as many states already provide. (Estonia, much admired by Bush for its flat tax, apparently also provides on-line filing). At minimum, truth-in-advertising requires removal of the word “free” from the IRS website.

Lenny G