Tax preparers lobby heavily against simple filing

by
Green dollar bills above a white tax document.
(Photo credit: 401 (K) 2013/Flickr)

As Americans struggle through complex rules and messy paperwork to meet today's deadline for filing their income taxes, it might be somewhat comforting to know that making the whole arduous process simpler and more transparent has long been a goal of President Barack Obama as well as prominent Republicans in Congress — and that it's being discussed again this year.

But, as we all know, it's one thing to talk the talk and another thing to walk the walk. If so many people agree on the need for making taxes easier to figure out and file, how come it's not happening? The recent story that ProPublica's Liz Day did about how Intuit, the parent company behind TurboTax, has lobbied extensively against a so-called "return-free filing" system inspired us to take a broader look at a sector that has a vested interest in keeping taxes complicated. Lo and behold: Companies that prepare taxes are throwing millions at Congress to oppose making tax filing easier.

Since 1998, major tax preparers have spent almost $28 million lobbying Congress. The vast majority of that spending — more than $20 million — came in just the past five years, according to data obtained from the Center for Responsive Politics. And that's not all — high-powered advocacy groups that oppose tax reforms like return-free filing, such as Americans for Tax Reform (which favors scrapping the current progressive tax system for a flat tax) and the Coalition for Taxpayer Rights, have poured in millions more to lobby Congress. Although this money is used to influence a variety of issues, many of the lobbying disclosures the groups have filed explicitly target tax simplification and pre-filled returns.

Tax simplification has long been an overarching goal for politicians of both parties. President Obama advocated for IRS-prepared tax returns in 2007, and recent bills have been introduced which would significantly simplify tax filings, such as former Sen. Daniel Akaka, D-Hawaii, in 2008 and Rep. Jim Cooper, D-Tenn., in 2010.

Supporters claim simple returns would free Americans from the frustration of filing complex taxes, saving $2 billion in processing costs and millions of hours in lost time.

But none of these efforts have succeeded so far.

Professional tax preparers like Intuit, H&R Block and others have opposed programs that would allow taxpayers to pay their taxes without filing a return for years. They warn that IRS-prepared returns will cost millions to develop and will result in more filing errors and missed refunds for taxpayers. Grover Norquist, president of Americans for Tax Reform — a politically active nonprofit that does not have to disclose its donors — calls the system "a money-grab by the government" and points out the conflict of interest that arises from a tax collector like the IRS preparing taxpayers' returns. Many critics also point to the Free File Alliance already in place, a joint program by the IRS and tax preparers that allows people making less than $57,000 to file federal and state taxes for free.

However, it is worth noting that tax preparers rely on people being unable to file their own returns, and have a vested interest in keeping the tax code complex. If Congress passed a law that allowed "millions of Americans can do their taxes in less than 5 minutes" as some proposals claim, taxpayers could easily bypass tax preparer services and file returns on their own.

Information on several of the key organizations that have opposed return-free filing and some other measures designed to ease the tax paperwork burden below.

Intuit

As Day pointed out, Intuit is leading the charge against return-free filing. The TurboTax producer has spent over $15 million in lobbying expenditures, including 35 instances where it explicitly lists "oppose IRS government tax preparation" on disclosure reports. Intuit has also rallied against specific bills that would facilitate simpler tax returns, such as the Free File Program Act of 2011. It would have allowed the U.S. government to prepare tax returns, but was targeted by Intuit's lobbying and failed to gain traction. Intuit has also backed legislation that would prohibit simple government filing as well. The company lobbied in support of such a bill introduced in 2007 by Rep. Zoe Lofgren, D-Calif., whose district includes Silicon Valley — Intuit's own backyard. Despite their support, the bill died in committee.

Besides its lobbying efforts, Intuit's PAC has also registered over $5.5 million in contributions to political candidates, with Republicans holding a slim advantage according to Influence Explorer. One of the biggest donations was a $1 million gift in 2006 that went to the Alliance for California's Tomorrow, an independent expenditure committee that supported GOPer Tony Strickland in that year's California controller election. The reason for Intuit to drop so much cash in a state controller's election: Strickland's opponent was John Chiang, a supporter of California's then-nascent ReadyReturn program which allowed the state to file tax returns on behalf of select citizens. Since Chiang's victory the ReadyReturn program has persisted and expanded, taking with it potential customers for Intuit's TurboTax software. California continues to be a primary focus for Intuit, which has contributed another $1.47 million dollars to politicians in the state since 2000.

H&R Block

Another major tax preparer fighting against simple filing is the national chain H&R Block. The nation-wide chain has lobbied Congress to the tune of almost $9 million since 1998 — but it has ramped efforts up recently, spending over $7.5 million in just the last five years. Overall, H&R Block has dozens of mentions that oppose "return-free filing" in their lobbying reports, highlighting its importance. Specific disclosures reveal the company has attempted to influence a range of filing issues, from the explicit "tax simplification" and "return-free filing," to the more obscure "matters related to personal income taxation."

Several bills that H&R Block has lobbied against would have established simple file programs. These include Rep. Cooper's latest attempt to allow the IRS to prepare tax returns, and the Auto File Act of 2009, introduced by former Rep. Anthony Weiner, D-N.Y. It would have required the Secretary of the Treasury to provide pre-filled returns for select taxpayers. Both of these bills failed to gain traction and died in committee.

Influence Explorer reveals that several former H&R Block employees and at least one current employee sit on Treasury Department advisory bodies, including the Electronic Tax Administration Advisory Committee (ETAAC). This group offers recommendations to the IRS on how to implement electronic tax filing procedures, and has been critical of a simple file program. In ETAAC's 2012 annual report to Congress, panel members recommend to "defer any further consideration of Simple Return," despite calling for "substantive tax simplification." The group dismissed simple file with the same exact phrase in its 2011 report as well. And the ETAAC has repeatedly encouraged the government to team up with retail tax preparers; in 2010, they said the "IRS must develop a robust partnership with the electronic tax preparation and filing industry."

H&R Block hasn't shied away from campaign giving either. Its PAC made almost $2 million in donations, including almost $30,000 to Senate Finance Committee Chairman Max Baucus, D-Mont., and Sen., Orrin Hatch, R-Utah, who has said he hopes to succeed Baucus if Republicans win control of the Senate next year.

Sunlight attempted to reach H&R Block for comment and while some of our messages were acknowledged, we were unable to get anyone to respond to the substance of the story via phone or email.

Jackson Hewitt

Jackson Hewitt is the second largest tax preparer in the nation behind H&R Block, and though it has fought against return-free filing, its Capitol Hill presence is significantly smaller. In the last 15 years, Jackson Hewitt has doled out $550,000 in lobbying money, all of it focused on tax issues. According to specific disclosures, the company does explicitly target tax simplification topics like "return-free processing."

Treasury Department advisory committees also contain 5 former Jackson Hewitt employees, and one current employee sits on the ETAAC. Jackson Hewitt's PAC has donated modestly to political candidates, far behind the amounts of H&R Block or Intuit.

American Coalition for Taxpayer Rights

Outside of tax preparers themselves, the industry is reinforced in its opposition to return-free filing by various trade and advocacy groups. One of these is the American Coalition for Taxpayer Rights (ACTR), an organization composed of various tax preparers and makers of tax software. In addition to Intuit, H&R Block and Jackson Hewitt, their membership includes TaxAct, TaxSlayer, Liberty Tax Services and more. It's a relatively new group, but in the only two years it's existed the ACTR has poured almost $450,000 into the tax lobby, including six mentions of opposing "simple-filing" in their disclosures. The ACTR classifies itself as a 501(c)6 trade association (similar to the Chamber of Commerce). It has not made any political contributions.

Requests for comment from the ACTR went unanswered.

National Taxpayers Union

The National Taxpayers Union (NTU), a nonprofit dedicated to "lower taxes and smaller government," is another advocacy group against IRS-prepared returns, including written briefs criticizing California's ReadyReturn program. Though spanning a variety of issues, they have registered more than $2.5 million in lobbying expenses over the past 15 years. Looking closer at disclosures, the NTU has listed topics such as "Prohibit IRS 'Ready Return' program" among other tax simplification measures. The NTU has also supported legislation that would outlaw pre-filled tax returns, such as the Taxpayer Freedom to File Protection Act of 2011 introduced by Rep. Sam Johnson, R-Texas.

Unlike the ACTR, the NTU is a 501(c)4 and has a healthy record of campaign contributions, though not so much to federal candidates. Instead, the NTU contributes broad swaths of cash to a few select state causes, including $700,000 to the Restore Oregon's Campaign Limits Committee. Only three percent of the group's donations went to candidates or committees in federal campaigns.

Computer and Communications Industry Association

The Computer and Communications Industry Association (CCIA), of which Intuit is a member, represents its members on a wide range of technology issues, but spends a significant amount of its $6.7 million in lobbying on tax simplification. As ProPublica's piece points out, the group operates the website "Stop IRS Takeover" which bashes the idea of pre-filed returns. Disclosures indicate the CCIA has focused on "issues pertaining to tax preparation services" and legislation involving simple filing. It lobbied in support of Rep. Lofgren's bill that would have barred government-filed returns, and rallied against Sen. Akaka's bill that would have let taxpayers file directly through the IRS "without the use of an intermediary."

The CCIA is an active political giver as well, doling out over $650,000 over the past 20 years with 91% going to Democrats. Silicon Valley-based Rep. Lofgren, an opponent of IRS-prepared returns, has been the biggest beneficiary of CCIA donation, collecting over $12,000. The group also opposed John Chiang in the 2006 California controller election, chipping in $50,000 to the Alliance for California's Tomorrow — the same group that received $1 million from Intuit.

Whether or not return-free filing and other tax simplification efforts will gain momentum as part of a grand bargain to tackle the budget deficit remains to be seen, but it appears there will be lots of money on the table to stifle any such movement. Although tax preparers create products to simplify taxes for Americans, it seems they don't want to make it too easy.