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How the Maker of TurboTax Fought Free, Simple Tax Filing

Intuit has spent millions lobbying to keep tax season miserable.

| Tue Mar. 26, 2013 1:35 PM EDT

In separate reports, the CCIA and a think tank that Intuit helps sponsor argue that potential costs outweigh return-free filing's benefits. Among other things, the reports say that not many taxpayers are likely to use return-free, that new data reporting requirements could raise costs for employers, and that taxpayers could face new privacy and security risks.

The reports and Intuit also note that many taxpayers can already get free tax filing through the Free File Alliance, a consortium involving the IRS and a handful of companies. But last tax year, only about 3 million filers had used Free File, according to a Treasury tally through April 28.

In an SEC filing, Intuit said it provided about 1.2 million free federal returns for the 2011 tax season. The company and competitors typically advertise free federal filing on the Web but also pitch other paid services, such as filing certain state returns.

Government studies have split about whether a return-free system would save or cost the IRS money, according to a 2003 Treasury report. Unless the tax code was simplified, the report said, it would add work for employers and the IRS, which would have to process tax records sooner.

Some independent tax experts see potential problems with a return-free system.

Eric Toder, co-director of the Urban-Brookings Tax Policy Center, said the IRS, "an overpressed agency that's being asked to do a lot of things," shouldn't be asked to do what software companies could easily do.

James Maule, a professor at Villanova University School of Law, said the average taxpayer probably wouldn't scrutinize a pre-filled return for accuracy or potential credits. "Some people might get this thing that says this is your tax bill and just pay it, like with property tax bills," said Maule.

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So far, the only true test case for return-free filing in the US has been in Intuit's home state.

In 2005, California launched a pilot program called ReadyReturn. As it fought against the program over the next five years, Intuit spent more than $3 million on overall lobbying and political campaigns in the state, according to Dennis J. Ventry Jr., a professor at UC Davis School of Law who specializes in tax policy and legal ethics.

Explaining the company's stance, Intuit spokeswoman Miller told the Los Angeles Times in 2006 that it was "a fundamental conflict of interest for the state's tax collector and enforcer to also become people's tax preparer."

The following month, an ad in The Sacramento Bee, paid for by the CCIA, cautioned "Taxpayers beware" and said ReadyReturn "could be very harmful to taxpayers." The ad pointed to a now-defunct website, taxthreat.com, opposing ReadyReturn.

Former California Republican legislator Tom Campbell recalls being surprised at the opposition.

"The government imposed the income tax burden in the first place," he told ProPublica. "So if it wants to make it easier, for heaven's sake, why not?"

In a Los Angeles Times op-ed at the time, Campbell wrote he "never saw as clear a case of lobbying power putting private interests first over public benefit."

Joseph Bankman, a Stanford Law School professor who helped design ReadyReturn, says he spent close to $30,000 of his own money to hire a lobbyist to defend the program in the legislature. Intuit made political contributions to scores of legislative candidates, Bankman said, and gave $1 million in 2006 to a group backing a ReadyReturn opponent for state controller.

ReadyReturn survived, but with essentially no marketing budget it is not widely known. Fewer than 90,000 California taxpayers used it last year—although those who do use it seem to be happy. Ninety-eight percent of users who filled out a survey said they would use it again. The state's tax agency has also praised ReadyReturns, saying they are cheaper to process than paper returns.

Bankman thinks national return-free filing could make many others happy, too. "We'd have tens of millions of taxpayers," he said, "no longer find April 15 a day of frustration and anxiety."

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