The Internal Revenue Service (IRS) is developing a free digital tax-filing system. The development of the system was confirmed by The Washington Post as it reported that a government-built system could shake up the $14.4 billion tax-preparation industry. This IRS prototype, which has been developed with $15m funding, is set for small-scale testing from next January.
The development of the free tax-filing system was carried out by the IRS and the White House’s technology consulting agency, the US Digital Service. The government software would enable taxpayers to file their tax returns electronically and for free, without having to rely on commercial tax-filing companies such as Intuit’s TurboTax and H&R Block. This development by the IRS has been regarded by some as a welcome change, as many have criticised the existing system for being too complex, and have accused the tax-preparation industry and their Republican Party lobbyists of benefiting from a system that penalises individuals and businesses.
The new system comes after years of pressure from lawmakers. Massachusetts Democrat Elizabeth Warren had called for the development of an IRS tool that would provide an alternative to commercial tax preparation software. The agency is set to begin a limited pilot test of the system in January 2022. However, it remains uncertain whether the system will enable users to file state tax returns in the same way commercial services do.
Despite being prohibited by Congress from creating its own system, the IRS has had to explore alternative systems. The largest commercial tax software companies H&R Block and Intuit’s TurboTax were involved in a free tax help program for qualifying taxpayers. However, they did not participate in large enough numbers, which renewed interest in changing the system. Intuit and TurboTax have been ordered to pay $141 million to compensate 4.4 million taxpayers who tried to use free tax programs but were instead directed towards paid products.
The prototype product is expected to be tested by a small group initially. Nevertheless, the IRS’s free filleting system could become a technological innovation that transforms tax-filing for US taxpayers, making free online tax filing services more widely available.
In conclusion, the IRS’s move to create a free digital tax-filing system has been highly applauded. It represents a step towards greater accessibility to reliable and trustworthy tax-filing services. With the potential to rival commercial tax-filing companies, the new system could disrupt a $14.4 billion industry and positively impact the nation’s economy by keeping more money in the pockets of taxpayers.
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