IRS Fails Audit: Free File "Did Not Always Accurately Compute Taxes"

A Treasury Department audit found that Free File users with kids may have missed out on several significant tax credits. Free File allows “low-income” Americans – taxpayers making under $52,000 per year – to file their taxes for free. The audit discovered that the program’s online affiliates “could not handle simple returns,” resulting in the following failures:

•25% of Free File affiliates improperly calculated eligibility for the earned income tax credit and the dependent care credit;
•Almost 50% of affiliates did not ask users for enough information to determine if they were eligible to claim exemptions for dependents;
•One affiliate allowed improper exemptions for dependents;
•Some affiliates hate kids and would not allow filers to claim more than four dependents.

The Treasury Department wants the IRS to test the accuracy of its affiliates, but it’s nice out and the IRS thinks that will take too much work:

Management did not agree with our recommendation to establish a process to test the software used in the Free File Program to ensure common scenarios are being handled accurately. Management stated the IRS already reviews the accuracy of Alliance members’ software to ensure it operates within the parameters of the Free File Agreement, and other tests ensure these electronic returns are compatible with IRS system requirements. However, these tests do not assess the accuracy of applying the tax law. Management stated testing of commercial tax preparation software to determine its accuracy in applying the tax law would be a monumental challenge for the IRS.

Filers who think they may have been shortchanged should acquaint themselves with our dear friend, Form 1040X.

IRS tax-filing software often problematic [LA Times]
Additional Action Is Needed to Expand the Use and Improve the Administration of the Free File Program (Audit # 200640033) (PDF) [Treasury Inspector General For Tax Administration]
(Photo: numberstumper)

Comments

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  1. cgi5877 says:

    WHERE IS THE STING OPERATION VIDEO PLEASE!?!?

  2. banned says:

    When it comes to YOUR money and YOUR taxes, the only person you can trust is you. Learn to do them yourselves because alot of tax professionals are poorly trained, let alone business people and programmers designing the software. Added to that is tax forms change slightly every year, so unless the people designing the tax laws and forms are also designing the software, there are bound to be errors.

  3. Does anyone else see a problem with the concept of “allowing low-income families to file their taxes for free”? I mean…”We will LET you give us money! For Free!!!”

  4. ribex says:

    I am sure there are other errors not reported.

    I initially ran my taxes using TaxCut software (not online). Since I was eligible for Free File I decided to give it a try. I tried out 4 different options. Most of them would not recognize a line item on my W2 (a state-specific mandatory disability tax). I contacted each of the companies. In the end, the only one that it worked/who fixed it was H&R Block’s online TaxCut, so that’s who I filed with.

    I complained to the IRS about this matter. The gentleman I spoke with was very helpful and was eager to look into it further.


    @spiderjerusalem: Are you *trying* to be an ass? I would venture a guess that most low-income families do NOT owe taxes but rather get a refund (EIC, etc). “Filing taxes” does not equal PAYING taxes. Some people actually have a gross income that is higher than their net income when they are eligible for the Earned Income Credit, which is a reason why those who are not required to file, to file a tax return.

  5. Bulldog9908 says:

    @rocnrule: I agree that you’re responsible for the accuracy of your tax return, but the tax code is far too complex for anyone to understand.

    A single copy of the US tax code printed on letter-sized paper would take up 7500 single-spaced pages, and that doesn’t include all the tax court rulings that affect the code.

    The root of the problem is the overly complex tax code. Fix that, and you won’t need help preparing your return. Until then, expect that the average person won’t be able to prepare his or her own return without errors and expect continued errors from tax preparers and tax software.

  6. @ribex: I have no idea what your actual objection is to my comment. I file every year, for free (less the cost of the stamps), and I usually get a refund of some sort, because I make less than 12k a year. I object to the idea that people have to pay to file their taxes, and potentially pay again if they actually owe money. It seems disingenuous to allow a system that makes you pay for something that is mandatory and makes you poorer.

  7. guymandude says:

    In 240 U.S. 001 (Brushaber v. Union Pac. R.R.) it was ruled that the so called federal income tax, as a consequence of considering the *source* of income, must be levied as an indirect, excise class tax. So can anyone tell me how the IRS lawfully collects the taxes they levy?

  8. r81984 says:

    @guymandude:
    Tell me how in every economics book income=(profits – expenses) but when someone makes $50,000 a year and spends $45,000 of it why do they have to claim $50,000 instead of $5,000????

    Also if you trade your work for money, how is that a profit????
    If someone buys my time, an even trade, how is any profit made when I lost my time???

  9. guymandude says:

    @R81984:
    I cannot answer your question. Neither are you able to answer the question yourself. Why? B/c the word “income” has no meaningful definition. If you look up the word “income” in title 26 you will find that the word “income” is used recursively in it’s own definition. You can’t use the word you’re defining in the definition of the word so there is, in fact, no definition for the word “income”. So how can I answer your question when neither of us know what “income” is(regardless of what any Econ book says)?

  10. B* says:

    When I was in college, I tried using H&R Block’s free tax program through the IRS website. It would not work properly because it did not ask for enough information. It said I owed almost $70 when in fact I was owed a $4 return. Not a big deal until you’re an absolutely broke college student. :)

    Moral of the story, learn to do your own taxes. I did them without my dad’s help for the first time this year and it was way simpler than it appeared (and I was filing for a year in which I lived in two states and got married). Tax programs don’t have the computing flexibility of a human being.

  11. synergy says:

    Sounds like someone’s been watching “America: Freedom to Fascism.”