I have told this story before here, but it's relevant.
In 2021, I filed my 2020 taxes, and a few months later I get a letter from the IRS saying that I owed $8000 because I forgot to report a large stock transaction. I owed $7000 + a $1000 fine.
I wasn't mad at all about the $7000, I definitely owed that and it was just an oversight on my end, these things happen, and I was able to get the fine lowered by calling the IRS [1], so that wasn't a huge deal .
What did annoy me was why do I have to do anything? If the IRS knows about the transaction and is able to complain about me not paying enough, that suggests that they already have the information that I'm sending them. Why make me buy software and copy information from a piece of paper into that software, just for the IRS to check it against the numbers that they already have?
I understand that you might need to issue corrections, and maybe the software should exist for something like that, but it doesn't seem like it should exist otherwise.
[1] Who at least in my case was actually really polite and helpful! I had heard horror stories but that was definitely not the case for me. The people I talked to were very sympathetic and nice.
I’m 100% with you on that big point - the process just be “here’s what we have for you, do you have any missing data?” and 99% of people can just click “ok”. Your comment about the agent reminded me of a former coworker whose mother was an IRS auditor: she commented that most people assumed it was going to be some horrible ordeal and were surprised a) that she was a normal suburban mom rather than the Gestapo and b) ended up finding deductions such that close to half of the people she talked to came out ahead.
>What did annoy me was why do I have to do anything?
There are two reasons. 1) Because Intuit owns enough reps to keep their business existing. 2) They have a fairly easy time doing that because the Republican party explicitly believes that taxes should be painful to discourage America from having functioning taxes.
All the "IRS might not know everything about you" is distraction. That's not a problem in any of the countries that have no trouble sending you a preliminary document for you to amend or accept. It's FUD.
For a long time the IRS was literally barred from doing what TurboTax does.
> If the IRS knows about the transaction and is able to complain about me not paying enough, that suggests that they already have the information that I'm sending them.
You mistakenly assume that simply knowing what is on the 1099-B form is sufficient to determine your tax on the gain. They don't know if you are married or single or head of household (filing status) in the current tax year. They don't know what some of your itemized deductions and other income not reported to them might be (which in turn, along with filing status, determines what marginal tax bracket you are in). They don't know if you are actually just a nominee for someone else's income. These are just a few examples. They don't know any of this stuff until you tell them by filing your complete return.
> They don't know if you are married or single or head of household (filing status) in the current tax year. They don't know what some of your itemized deductions and other income not reported to them might be
I think you're misinterpreting the GP's point. Clearly, at least in our current system, it is essential to tell the IRS the parts of the return that they don't already know such as what are your expenses, deductions, marital status, etc.
But the absurd thing is that the capture of the IRS by the paid tax prep scammers has prevented them from simply showing you what's on your tax transcripts and having you click "Agree" or "Modify" for each one. Instead, you get your own copy of the 1099-B, 1099-DIV, 1099-INTs, and are administered a pointless "honesty test" to see if you'll type in the same numbers they have, or be automatically punished.
Obviously, Direct File was ideally situated to offer this feature since IRS has the data themselves, and simply populating the numbers is a highly efficient way of ingesting the data into your return.
It’s not an honesty test, it’s a result of how the US income tax system evolved. Originally the IRS had far less data and everyone filed paper returns. For example, it was only in 2008 that Congress required brokers to track and report cost basis on 1099s to cut down on people overstating their basis to decrease their cap gains.
Under Biden, the IRS tried to make w2s and 1099s available. If you log into the IRS website with your information, you can download the w2s and 1099s the Service has in your name.
Antitax activists have fought these steps every step of the way because the less annoying tax filing is, the less people will buy their antitax arguments.
The IRS isn’t captured by these predatory tax preparers, Congress is. The IRS can’t do a lot on data without Congress specifically authorizing it. And the Republican Party is in bed with the antitax activists who are in bed with the tax preparation companies.
Transcripts are for previous returns. I was saying you can grab the w2 and many of the 1099s the IRS received for you this tax year before you file your return by logging into the IRS website.
I'd be surprised if they don't know that I'm married, considering I've mentioned that I'm married on every tax return for the last nine years, so they could send me a form with all the stuff that they do know about and ask if they need me to correct anything, or if I have anything else to declare. They could ask "Are you still married? Are you still married to the same person?" and update stuff.
It might be that if they sent you the "here's all we know, please add anything else" thing, people would not add things that costs them more tax, safe in the knowledge that they don't know about it.
If it’s for shares bought before 2011, they don’t even have the basis.
(They can detect that you had a sale for which they got a 1099-B but you didn’t list on your Schedule D. That doesn’t mean they have enough information to fix it.)
They probably know less than you think. (Are you selling stuff at the farmer's market for cash? Did you gift your coin collection to your grandkids?) Making everyone file reduces fraud somewhat – but whether that's worth the country's time and effort is a different story.
Sure, hence why I would be perfectly happy for them have a system where I can amend stuff. I'm just saying that the default should be to "send me letter in mail, I verify it looks fine, I sign it and send it back". The entire process for most people could be like ten minutes.
It took me two hours this year, and my taxes are generally pretty simple. I had exactly one W2 job last year, I have a mortgage, my wife does school, I sold some stock, I had some T-Bills, and I declared my wife's education.
I'm not doing anything clever to try and lower my tax burden, it's an extremely straightforward "run it through tax software" process, and it still took me two hours.
In 2021, I filed my 2020 taxes, and a few months later I get a letter from the IRS saying that I owed $8000 because I forgot to report a large stock transaction. I owed $7000 + a $1000 fine.
I wasn't mad at all about the $7000, I definitely owed that and it was just an oversight on my end, these things happen, and I was able to get the fine lowered by calling the IRS [1], so that wasn't a huge deal .
What did annoy me was why do I have to do anything? If the IRS knows about the transaction and is able to complain about me not paying enough, that suggests that they already have the information that I'm sending them. Why make me buy software and copy information from a piece of paper into that software, just for the IRS to check it against the numbers that they already have?
I understand that you might need to issue corrections, and maybe the software should exist for something like that, but it doesn't seem like it should exist otherwise.
[1] Who at least in my case was actually really polite and helpful! I had heard horror stories but that was definitely not the case for me. The people I talked to were very sympathetic and nice.