The IRS has all our tax data. Why doesn't its new website use it?
The U.S. Internal Revenue Service is piloting a Direct File system, raising questions about why it doesn’t simply pre‑populate tax returns with the wage and income data it already receives from employers and financial institutions. Commenters debate how much information the IRS truly has (especially about deductions, dependents, and small businesses), political and lobbying pressures that have historically blocked simpler filing, and whether revealing the agency’s view of a taxpayer’s liability would encourage underreporting. Others point to countries like India and Estonia as evidence that near-automatic filing is feasible, while noting U.S.-specific challenges such as legacy IT systems, identity verification, privacy concerns, and the strategic advantage the government gains by not showing all its cards.
Extent of IRS Knowledge and Feasibility of Pre-Filled Returns
- Many argue the IRS already has “most” relevant income data (W‑2s, 1099s, broker reports, mortgage interest, etc.) and could pre-fill 90–95% of returns for typical wage earners using the standard deduction.
- Others counter that the IRS often lacks key inputs: dependents, filing status changes, itemizable expenses, self-employment income, some property sale data, foreign income, and many deductions.
- Dispute over “all vs most” data: some insist that for the vast majority the IRS effectively has everything they actually report; others highlight gaps, weak inter-agency data sharing, and non-reporting states for real estate sales.
Trust, Liability, and “Fox Guarding the Henhouse”
- Skeptics see asking the IRS to “do your taxes” as asking a conflicted party to calculate your bill.
- Supporters respond that the IRS already computes expected tax from reported data and flags discrepancies; pre-filling would just expose that starting point.
- Several describe IRS treatment of honest mistakes as relatively lenient: corrections via letters, small penalties, payment plans, and amended returns.
Logistics, Identity Verification, and Privacy
- Concerns raised about securely delivering pre-filled returns, especially to people without online accounts or who move frequently.
- Suggested mitigations: use secure login systems (login.gov, ID.me), in‑person verification at government offices, and show only institutions/summary rather than full details.
- Some question whether tax data needs to be as private as assumed, noting other countries where filings are public.
Politics, Incentives, and “Information As Leverage”
- Multiple comments blame lobbying by tax preparation companies and underfunding of the IRS for the lack of automated filing.
- One line of argument: if the government revealed exactly what it knows, some people might notice missing income and choose not to disclose it. Keeping data opaque creates pressure to over-report rather than under-report.
International and State Comparisons
- India is cited as having smooth, preloaded online filing with minimal user input.
- Examples from Europe and Scandinavia are mentioned (public returns, once-only data principles), though details are sparse.
- Oregon’s new state-run “TurboTax-like” system is cited as a promising model.
Technical and Operational Constraints
- Comments note legacy IRS infrastructure (COBOL/mainframe, batch processing) as a barrier to real-time, integrated pre-fill systems.