Why can’t the IRS tell me how much income I got?

Folks:

I’m working on my 2013 taxes. My accountant says that I can have a PIN to electronically communicate with the IRS regarding estimated taxes, electronic signatures, and bank transfers. Meanwhile I am gathering up a lot of paper forms and downloadable PDFs from various financial institutions that reported simultaneously to me and the IRS how much they paid me in dividends and interest. I’m wondering why I have to do this. Isn’t the IRS’s own computer system the best source of data regarding how much an American was paid by an American bank? If taxpayers have a secure way of dealing with the IRS, which we apparently do, shouldn’t we be able to go to irs.gov at tax time and just check a box saying “that’s all of the interest and dividends that I got”?

(And yes I recognize that healthcare.gov was not exactly a shining moment for Federal government IT, but I do think the IRS could build a Web site that queries a database by SSN and uses a SUM function.)

22 Comments

  1. Thor

    March 31, 2014 @ 12:17 am

    1

    And what’s also crazy is that getting it wrong is illegal and after a certain margin it’s a serious offense. If they already know how much they want you to report, then that should just be the number. Anything else becomes a guessing-game with only one winner… the accountants.

  2. Mark Wilson

    March 31, 2014 @ 12:19 am

    2

    My accountant gets a copy of my tax transcript from the IRS every year, which has a lot of this kind of information. However, it does not include information not reported to the IRS that is necessary, such as the basis of assets acquired before the tax year in which they were disposed of.

  3. philg

    March 31, 2014 @ 12:24 am

    3

    Mark: That’s awesome! http://www.irs.gov/Individuals/Get-Transcript is something I didn’t know about. Maybe my accountant has been doing this in secret and just asking me to add up data from scraps of paper because he is sadistic!

  4. philg

    March 31, 2014 @ 12:46 am

    4

    Of course after saying that the IRS web site would work way better than healthcare.gov I got stuck during the registration process: “A confirmation code has been sent to your email address. Please check your email, and enter the confirmation code.” (but in fact no email was delivered within the first 20 minutes or so)

  5. Shane

    March 31, 2014 @ 1:05 am

    5

    Forbes blames the tax-prep lobby and a certain wing of small-government Republicans:

    http://www.forbes.com/sites/leonardburman/2013/04/15/the-tax-complexity-lobby/

    “The Obama Administration had proposed that government pre-fill your tax return with information it collects from employers, financial institutions, etc. The idea has gone nowhere, at least in part because of fierce opposition from the tax software industry.”

    “Grover Norquist, president of the ironically named Americans for Tax Reform [...] is famous for saying that he wants to shrink the federal government so much that it will fit in a bathtub… and then he wants to drown it. A simpler, less onerous tax system would presumably make people feel better about the government, and that is the last thing Grover and his fellow travelers want.”

  6. Chip McCormick

    March 31, 2014 @ 1:10 am

    6

    I was able to sign up to get IRS transcripts and got a confirmation email right away. Maybe try again or check your spam folder.

    Going through the process, it occurs to me it’s not hard to get tax transcripts for other people with access to their SSN (not hard to get I imagine)…they really should be sending out a mail verification instead of email, which there is no way to verify belongs to the filer.

  7. Jeffrey Friedl

    March 31, 2014 @ 6:46 am

    7

    To you it’d be a “Here’s Your Income” report, but to many it’d be a “Here’s What You Can’t Get Away With Hiding” report.

  8. Matt Henderson

    March 31, 2014 @ 8:51 am

    8

    I tried to signup as well, but got an error, “The information you entered does not match our records. Please verify your information and try again.” And of course, the website doesn’t show which field contains non-matching information. And of course, it doesn’t offer any suggestions as to how to get past this problem, other than “please check your information”.

  9. Matt Henderson

    March 31, 2014 @ 9:24 am

    9

    Phil,

    Any chance you might consider using something like Disqus for comments on your blog? It’s a drop-in replacement for WordPress comments (via plug-in) and carries the benefit of allowing commenters to be notified when others comments. (Often I’ll comment here, and forget to come back to check on the conversation.)

  10. philg

    March 31, 2014 @ 10:58 am

    10

    Matt: Thanks for the suggestion on Disqus. I don’t maintain this server, though! I am a humble blogger here rather than a programmer/sysadmin (jobs from photo.net that I do not always miss!).

  11. Alex

    March 31, 2014 @ 11:25 am

    11

    I’ve heard tell that the way it more or less works in the UK is that you get a packet once a year saying “Here’s your tax return all filled out and how much you owe/are owed based on what we know. If you have any changes/disputes let us know, otherwise you are done.”

  12. philg

    March 31, 2014 @ 11:31 am

    12

    I shouldn’t complain too much about this, I guess, because it does give me the opportunity to review all of my credit card statements and find out which companies are billing me every month for a random subscription that came along with a Web purchase. Still, I could certainly work an extra two weeks per year if I didn’t have to do tax-related bookkeeping and then the actual work of tax return review (plus hold onto an extra $2500/year in cash that I have to pay my accountant (who does earn the money in my opinion!)).

  13. Bryan Schappel

    March 31, 2014 @ 11:48 am

    13

    Since Reagan the only thing the GOP seems to remember is “government is the problem” and they’ve done everything in their power to make that come true. Having the government provide a useful, near zero-cost solution to a problem is anathema to the GOP. Yes, the IRS should pre-fill your electronic tax form with the data they have but it makes too much sense and would be a benefit to the actual people of the USA to be enacted.

    BTW, heathcare.gov was built by the private sector. It was bid out and the lowest bidder won. And for those that haven’t been paying attention healthcare.gov is working very well and has been for months. Enrollment is going very well and will be very close to the target the CBO predicted.

  14. philg

    March 31, 2014 @ 11:53 am

    14

    Bryan: It does make sense that the Republican Party would be responsible for everything that annoys Americans. But how did these evil geniuses prevent the Democrats from cleaning up the tax process during those periods when Democrats controlled the White House and both parts of Congress?

    [I hadn't realized that healthcare.gov was a private sector site or that the lowest bid was $2 billion for development and a couple of years of maintenance. Perhaps all of us need to start bidding on government contracts!]

  15. D

    March 31, 2014 @ 12:07 pm

    15

    There’s a system called Ready Return in California that does something similar to what Phil is looking for:

    https://en.wikipedia.org/wiki/ReadyReturn

    The short answer for why you can’t do this everywhere is lobbying. Intuit among others (of TurboTax fame) have successfully lobbied to prevent the IRS from entering the tax preparation market, well, for obvious reasons. There are a whole host of things that are considered tax prep, and that the IRS *could* do, but won’t do. It’s just protecting the tax prep market. The number of people who could get by with a really basic offering is so huge that if the simple cases were handled automatically, it would put a massive dent in the industry.

  16. Jeff

    March 31, 2014 @ 12:13 pm

    16

    My European coworkers cannot believe how backwards the tax system is in the US – thankfully our employer covers their professional tax prep and any legal fees for their first 2 years filing US taxes; apparently many of the Scandinavian countries essentially send you your bill at the end of the year (or refund) and thank you for your contribution to the government.

  17. J. Peterson

    March 31, 2014 @ 4:06 pm

    17

    Getting the income transcript from the government still doesn’t eliminate the paperwork. E.g., the client you consulted for (who sends in the 1099) likely doesn’t know what your deductible expenses are. Also what @Mark Wilson said about asset cost basis, etc.

  18. jquiroga

    March 31, 2014 @ 6:01 pm

    18

    In Spain, taxpayers can choose to receive a report of all income known to our tax agency, or a draft tax return, pre-calculated for convenience. Usually, I just push a button in their website to file their draft with no changes, and I’m done in less than half an hour.

  19. E. Rekshun

    March 31, 2014 @ 6:53 pm

    19

    I went into my office last Sunday w/ all my 2013 tax paper work, prepared my 1040, and mailed of a check to the Treasury Dept. for $3002.

    So, for fun, today, I pulled all my federal state income tax returns going back to when I first started working for taxable wages (1979). I loaded all he key data into a spreadsheet year-by-year (w2 wages, interest/dividends/capital gains, federal income tax, state income tax). It was interesting to see that I’ve paid over $250K in federal income tax over my life so far.

  20. Ewen McNeill

    April 1, 2014 @ 4:24 am

    20

    FWIW, the simple case for tax returns in New Zealand (only income is tax deducted at source employee income, and tax deducted at source bank account interest) is basically as described: the Revenue Department just declares that you’ve already paid the correct amount of tax, and you don’t have to file any return. It’s been like this for about 10 years IIRC (ie, since they got all the electronic filing of taxed-at-source straightened out).

    You can still choose to file a tax return in that situation, and there’s a reasonable chance you’ll get a refund if you have, eg, qualifying donations to deduct or some other reason to reduce your tax burden. But providing you have no other income, it’s completely optional. Typically people don’t bother unless they’re pretty confident they’re going to get a refund.

    If you do have other income (eg, self employed, run your own business, own rental property, etc, etc) you do still have to file a tax return each year. But around that point typically you give up and get an accountant to do it all anyway. Plus of course there are The Usual Horrific Penalties for having other income such that you’re supposed to file a tax return and failing to do so, or not declaring all your income, etc. So generally the people who should file do, and the people who don’t need to file don’t.

    Ewen

  21. Anonymous

    April 1, 2014 @ 11:16 am

    21

    An IRS manager’s pay is determined by where they sit in the hierarchy plus years of service. More subordinates = more pay. Changing the system will be resisted because it means work for managers, but at least new complications mean generating the need for more subordinates and increasing pay. Simplification may not directly produce pay cuts, but it would reduce the opportunities for advancement of the managers tasked with implementing it. Simplification (more work + less opportunity) would be very strongly resisted by managers who generally have a lot more experience within the federal system than the political appointees tasked with effecting policy change.

    Additionally, there is the general political problem of doing this kind of change. Simplifying the tax system is in many people’s interest, but the bite of the existing system is small enough that no individual becomes especially motivated to drive change. Conversely, each complication benefits only a small group of people, but that (focused) benefit is large enough to motivate them to drive that change through the system.

    Our tax system is really an outcome of how we do government and not the political philosophy of whoever happens to be in power.

  22. Jim Howard

    April 3, 2014 @ 12:22 pm

    22

    Tax professionals have always been able to get client transcripts from the IRS, any that don’t are not doing their job. Now everyone can, in theory anyway.

    Our tax code is far too complicated for the government to fill out your form for you. Because of evil Republithugs of course.

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