MauledAgain

51 percent – paid preparers
42 percent – commercial software
3 percent – filed on paper
2 percent – Free File
1 percent – VITA (Volunteer Income Tax Assistance Program)
1 percent – TCE (Tax Counseling for the Elderly)
0.2 percent – FFFF (Free File Fillable Forms)
0.2 percent – Direct File

When I was a child observing my father sitting at the kitchen table filling out tax returns, I was unaware that there were people who paid other people to do what clearly was, at least from my father’s commentary, an unpleasant task. He filed my tax returns for me when I was very young – I started working at age 8, story for another time – but I insisted on doing my own returns as I entered my teen years. Unlike my father, I found the process interesting and intellectually challenging. I hesitate to conclude it was because I liked puzzles, because my father also liked puzzles but apparently did not consider tax return preparation to be anywhere near the delightful experience of doing crossword puzzles which he did every day.

Of course, in those days everything was done on paper and generally delivered through the U.S. Postal Service. By the time I started working at an accounting firm when I was in college, and given the task of preparing and reviewing tax returns, I learned that some of the returns were prepared by filling out forms that were delivered to a company called Computax, which then sent back returns that had been printed out on one of those early printers that created characters clearly identifiable as computer generated. That was a long time ago.

To this day there still are people who sit down, do their tax returns using paper and pencil, and file their tax returns on paper. The IRS is attempting to encourage those individuals to shift to electronic filing. That does not necessarily mean these folks would stop using pencil and paper to figure out what to put on the return. I knew someone who would use commercial preparation software to prepare their returns but who insisted on printing out the return and mailing it to the IRS. The reason? Distrust of digital technology when it came to sending information. I tried to explain that when the paper return reached the IRS, someone then keyboarded (and eventually scanned) the information on the return into IRS computers, and that sending the return electronically would bypass that process and eliminate the chance of any keyboarding or scanning errors. My efforts were futile.

So when did the use of paid preparers become much more common? Back in the 1950s and 1960s, perhaps 20 percent of taxpayers, at most, used paid preparers. The tax law was not as complicated back then. According to the Tax Policy Center, by 1981 41 percent of individual taxpayers were using paid preparers, and that percentage increased to almost 56 percent by 2002. The Tax Policy Center reports that the percentage of taxpayers using paid preparers fell from about 60 percent in 2018 to just under 52 percent in 2018. Surely that is a consequence of the rapid growth in the use of commercial tax preparation software.

If one considers commercial tax return preparation software to be a type of paid preparer, perhaps evolving into some sort of digital robot preparer, then the percentage of taxpayers using paid assistance rises to more than 90 percent. That, of course, is an indictment of the complexity of the federal (and most state) income tax systems.

It won’t be long before artificial “intelligence” provides systems that completely take over the tax return filing process. These systems will want access to a person’s entire financial situation, including bank accounts, credit card transactions, digital payment accounts, medical expense payments, etc. What will these systems do with this information aside from filing tax returns? There is no question there are people and corporations who want to get their hands on this data even though many corporations already have much of this information. Will the returns filed by these systems be correct? My guess is many returns will be correct but some will not, not dissimilar to what we see when humans use paid preparers or commercial preparation software to file returns, and not dissimilar to how artificial “intelligence” generally performs. I’ll leave to another day the experiences I’ve had “testing” various AI platforms. Suffice it to say the outcomes were far from encouraging and frankly, frightening. There’s a word many taxpayers use when discussing taxation, and it surely was a word used by students about to enter the basic income tax law course when I was teaching.

So as we enter another tax filing season, one that promises to be, shall we say, interesting, taxpayers need to decide how they will get their returns filed. Most, I think, will stay the course and do what they did last year. Some may find it easier and cheaper to shift from using paid preparers to using commercial software. A few may finally say goodbye to sending their returns to the IRS on paper. What will you be doing?