Never Let a Crisis Go To Waste

As we continue in this economic malaise, we are seeing a great deal more compliance enforcement activity at both the federal and state levels. The coffers are running empty and treasury departments are being aggressive about trying to fill them up. With this in mind, I found this article interesting.


I understand the desire of our elected representatives to “make things easier” for their constituents and certainly having to go to your local tax preparer to get your income taxes prepared can be inconvenient and sometimes expensive. I do think, however, that there is a general benefit to having an independent person helping to prepare your income tax returns. It is the role of the independent tax preparer to review the information received for completeness and accuracy, which I’m sure any IRS created software would do. Although, another function of the independent tax preparer is to suggest areas of tax planning that the typical individual hasn’t considered/thought about. I don’t imagine that any government created tax software is going to suggest ways to minimize the taxes reported.

In my mind, the suggestion that the IRS get into the tax preparation business is a progression of thinking that will ultimately lead to the IRS actually preparing returns for most individuals. The internal revenue code is getting more and more complex and at some point the Treasury department will have a strong case to be made that only they can accurately prepare many individual tax returns. They are already establishing systems that gather the majority of information that is included in the returns.

The following information is currently being gathered or will be in the very near future:

• Wages & Withholding

• Interest Income

• Dividend Income

• State Tax Refunds (Yes these are taxable, if you itemized your prior year deductions)

• Proceeds from Sales of Securities (cost basis reporting to start soon)

• Partnership and S-Corporation Income

• Trust Income

• Social Security Income

• Independent Contractor Income/Commissions

• Mortgage Interest Paid

There are only a few missing pieces in the information that they already collect that would need to be completed and they will have all the information necessary to prepare the vast majority of individual tax returns. I think it is just logical that at some point the IRS will want to control as much of the tax return preparation/filing process as it can and use the information that it is collecting to its fullest potential. What better time than when closing the “Tax Gap” is a priority?