Can You Trust Your Tax Software When It Can’t Keep Up

2008 TAX RETURN SOFTWARE has a built in error.  Thanks to the brilliant renaming of last year’s ECONOMIC STIMULUS PAYMENT, most tax software has missed the change.  Because few recognize that the “RECOVERY REBATE” line on this year’s tax return is nothing more than last year’s ECONOMIC STIMULUS.  The IRS is overwhelmed with errors on the Recovery Rebate line.  Most 2008 Tax Software just asks if you received the Stimulus last year.  Most Tax Software will put that number, if you even remember how much you got, on the Recovery Rebate line.  If you were issued the maximum Stimulus Payment last year, most likely you don’t qualify for the Recovery Rebate this year.  The sad part is, that any number on the Recovery Rebate line will falsely inflate your refund expectations … IRS has to subtract it and send you a letter, AT TAXPAYER EXPENSE, explaining “Why We Changed Your Return“.

IRS.GOV does try to explain the Recovery Rebate problem, but, too few actually read that, and even fewer understand IRS speak. There are a few happy surprises, like you added a child under the age of 17 to your tax return, you will get an extra $300.

Most of the confusion is caused by renaming the product.  Other confusion comes from when people are clueless that the issued Stimulus may have been applied to another government debt.  Still others were issued and mailed to the address put on the Tax Return … so giving IRS the wrong address may have allowed someone else to receive your check.  Some checks were actually undeliverable and returned to IRS, only to be absorbed back into the Treasury on December 31.

Most taxpayers swear allegiance to their tax software, it is their weapon/tool of choice every tax season.  The mantra “there can’t be a mistake, I used [insert brand name] to file this year”.  Yes, today’s tax preparation software does make filing taxes easier.  Yes, electronically filed returns expedite refunds, if you’re lucky.

What people don’t realize, even the best rated software has to be ready for the shelf before each year’s  tax laws are even agreed upon and decided. Why?  Because, congress has to scramble each year to flesh out the details when a special credit or deduction is added.

Last minute decisions are often signed into the law after software is released each year.  This causes lapses in software’s ability to apply recent tax rules to your tax return.  Politics at it’s least efficient has created a problem for every one of us.  It’s not always the software developer’s fault.  Why?  Because in the past few years the US Government has tried to morph tax laws to address the economic catastrophes hitting their constituents.  Constituents are, after all, consumers.  Consumers effect the bottom line for the same corporations that contribute and fund those same politicians.  This is the cycle of life for our elected officials.

Hence, patchwork tax laws that guarantee tax revenue from a confused tax system.  The bigger the confusion, the more revenue is guaranteed … even when inadequate patches are made.

Trying to implant a politically beneficial “temporary improvement” into a giant patchwork of vague revenue laws has hamstrung the entire system.  Taxpayers turn to ‘off-the-shelf’ solutions to their yearly tax accountability obligation.

GAO was asked to assess what is known about how pricing of tax software influences electronic filing, the extent to which the Internal Revenue Service (IRS) provides oversight of the software industry, and the risks to tax administration from using tax software.

IRS officials said the likely benefits of an assessment would not warrant the costs but have not determined either the benefits or costs of such an assessment. Moreover, IRS has also said that it is in the agency’s best interest to ensure that taxpayers can rely on commercial software to make electronic filing accurate, easy, and efficient. Further, if even small improvements in the accuracy of tax returns could be made by clarifying the guidance in tax software, the effect on revenue could be substantial. Without a risk assessment, IRS does not know whether its existing oversight of the tax software industry is sufficient or needs to be expanded.

IRS has not developed a plan to monitor compliance with new standards, which are optional in 2009 but may be mandatory in 2010.

Recommendation: the Commissioner of Internal Revenue should direct the appropriate officials to require tax software companies, as soon as practical, to include a software identification number that specifically identifies the software package used to prepare tax returns, which can be used in IRS research efforts.

Recommendation: the Commissioner of Internal Revenue should direct the appropriate officials to determine if tax software companies that are authorized to participate in online filing are adhering to advisory security and privacy standards for the 2009 filing season.

Recommendation: the Commissioner of Internal Revenue should direct the appropriate officials to develop and implement a plan for effectively monitoring compliance with recommended security and privacy standards for the 2010 filing season.

Recommendation: the Commissioner of Internal Revenue should direct the appropriate officials to assess the extent to which the reliance on tax software creates significant risks to tax administration, particularly in the areas of tax return accuracy, the security and privacy of taxpayer information, and the reliability of electronic filing.

So, until a better system can be agreed upon by United States lawmakers, they will proceed to make tax laws that only a sadist could love.  It is unfortunate that taxes, that run American Government, must depend on taxpayer ignorance.  It must be deliberate that the American education system does NOT prepare students for their citizenship obligations, which include PAYING TAXES.  It appears that schools do not address Tax Obligations, so taxpayers can continually make wrong decisions that cause them to owe the US Government and State Governments even more tax.  Schools are at the mercy of lawmakers, too.  If American Taxpayers are to get anything done about how tax requirements are administered, they must make it an election issue every time they vote.  IRS and Treasury is NOT TAKING YOUR MONEY, you are paying the government, YOU ELECTED, to take care of you right now and in the future.

Software companies have to scramble, each year, to keep up with the indecision caused by political patchwork on the Tax Law Codes.

It is so easy for taxpayers to rant and rave at the “Government” for “taking their money”.  Look in the mirror!  Your elected officials are the ones making these convoluted patchwork laws that you complain about.  IRS is just collecting what your lawmakers tell them to collect.  Your lawmakers even control how aggressively IRS must behave.  The US Treasury is YOUR bank account that oils the wheels of America.  Your tax dollars provide that oil.  Your voting voice tells the TREASURY how your obligation must be spent.  Your voice has been weak!  You’re still the boss, so when you complain, make sure your mirror isn’t broken!

Federal tax code

The Federal tax law is administered primarily by the Internal Revenue Service, a bureau of the Treasury. The U.S. tax code is known as the Internal Revenue Code of 1986 (title 26 of the United States Code). The Code’s complexity generally arises from two factors: the use of the tax code for purposes other than raising revenue, and the feedback process of amending the code.

EVEN ILLEGAL ALIENS pay their taxes, often at a higher rate than citizens!  They have get a Unique Taxpayer Identification, called ITIN, so they can file tax returns.  The Treasury has a department with a mission to correct some inequities that a complex tax system can produce … TAXPAYER ADVOCATE.