I mean, what are the specific laws that TurboTax and the other accounting companies supposedly lobby Congress to retain? What were their original purpose? Is that purpose obsolete these days?
They can’t send me a bill because they don’t know about my rental property.
I have to declare that on my tax return. Nor do the know about the furnace I bought for the rent house and depreciate.
I’m in Canada where the laws are obviously different, but the same basic principles apply. One year I was really behind in filing my income tax returns so the CRA very kindly did my income tax for me! So in effect, they actually did send me a bill. It included a whole host of “estimated” imaginary income and the absolute minimum of deductions, and was essentially a bill for an unrealistically outrageous amount of money. As was intended, I promptly filed my return, which was duly accepted, and of course it turned out that they owed me money.
The IRS could absolutely send you a bill and tell you to pay the bottom line unless you tell them you have some special bits to make the bill less. Then, up to you if you want to go to the hassle of telling them about your furnace (how much will that save you on taxes…is it worth your time?). I am willing to bet they know about your rental property income though. If they didn’t then tax evasion would be trivial. If there is one constant in the US it is cheating on your taxes almost always catches up to you…unless you are very wealthy (see: Donald Trump).
In 1985, President Ronald Reagan promised a “return-free” tax system in which half of all Americans would never fill out a tax return again. Under the framework, taxpayers with simple returns would automatically receive a refund or a letter detailing any tax owed. Taxpayers with more complicated returns would use the system in place today.
In 2006, President Barack Obama’s chief economist, Austan Goolsbee, premiered the “simple return,” where taxpayers would receive already completed tax forms for their review or correction. Goolsbee estimated his system would save taxpayers more than US$2 billion a year in tax preparation fees.
< snip >
At least 30 countries permit return-free filing, including Denmark, Sweden, Spain and the United Kingdom. Furthermore, 95% of American taxpayers receive more than 30 types of information returns that let the government know their exact income. These information returns give the government everything it needs in order to fill out most taxpayers’ returns. SOURCE
They know about it because I’ve been declaring it for fifteen years. They may also know about state real estate taxes.
My point, however is that they don’t know what deductions I would take, or all the additional income.
They virtually sent me a bill when I was making $1.25 and hour shelving books at the library and I filled out a 1040EZ return.
Mrs. Plant (v.2.0) caused us to be audited one year, and they were very nice about it, explaining that one did not deduct the cost of the furnace, but depreciated it.
A few months ago the IRS sent me a letter saying I messed up my taxes and was due another $700 in refund.
Kidjanot. The government, on its own, figured out I didn’t take all the deductions I could have and sent me $700.
I’m certainly not complaining but it shows they know more about my finances than I do (or I goofed somewhere on my taxes…they were not clear about where the mistake was but the point remains).
There is a certain absurdity in the tax system:
IRS: You need to pay taxes.
Me: How much?
IRS: You need to figure it out.
Me: Don’t you know how much I owe?
IRS: Yes, and we will punish you if you get it wrong.
Me: Won’t you just tell me?
IRS: No. You need to figure it out.
There is no reason they couldn’t automatically generate the forms that are good enough for 75%+ of people and then let people amend those returns if they want/need to.
Two examples of the IRS being nice as hell, who ever made the point. 
Let’s hijack the thread and ask why we don’t pay a percentage rather than have deductions, and not get a bill, but a receipt.
I don’t know that there is a law against the IRS sending you a bill, or even one against the IRS having its own online filing system.
However, HR Block, TurboTax, and everyone else who make their livings off of a complicated tax code lobby hard that no funding be provided to do this. The old distributed cost, concentrated benefits issue.
The anti-tax crowd doesn’t like the idea of the IRS billing you, either, as it makes paying taxes too easy if you don’t do the paperwork yourself.
Personally, I’d love the IRS to have to cease all withholdings, calculate what I owe, and then, like any other utility or credit card, I write a check each month to the Government. Works for my property taxes.
Huh, Cecil covered it, too…
I read that column. But as I said in my OP, there must be some legal reason the IRS can’t go ahead and send out those tax bills on their own right this very second, and I was wondering what it was.
Because we get to fill out forms explaining why we don’t have to pay all of that bill.
There is no legal reason, they would have to write two or three letters for every bill they sent out, paid for with our tax money.
From what I’ve read – subsequent to Cecil’s column – the IRS would be happy to do it and already has mechanisms in place. But Congress refuses to change the law to allow it. Tax prep firms lobby (i.e., give big donations to congress) to keep things as they are.
The law spells out what the IRS can do. Sending tax bills is not on the list until the law i changed.
Which brings me back to the questions in my OP: what exactly do these laws say and where are they? What was their original intent?
That is exactly why it’ll never fly. Why, the next thing you know, Medicare will take competitive bids on drugs, the minimum wage will be $15/hr, dogs living with cats, mass hysteria.
This GAO report from 1996 on Alternative Filing Systems may shed some light.
It estimates about 45% of filers would not have to make changes to a predetermined income tax.
This is probably the crux of the issue, though:
While both individual taxpayers and IRS could benefit from such a tax
agency reconciliation system, significant obstacles would have to be
overcome and some affected parties—such as tax preparers, some
financial institutions, and employers—might be negatively affected. For
example, we estimated that taxpayers could reduce the amount of time
they spend preparing tax returns by as much as 155 million hours annually
and could save millions of dollars in fees paid to tax return preparers.
That’s the kind of money that you will hire a lobbyist to protect.
I think you will find that the original reason for the current system is that back when income tax was first proposed, computers didn’t exist. The government would not have known how much each taxpayer earned, or what their likely deductions would be, except by huge amounts of clerical work.
It may be that there are no laws that specifically prevents the IRS from doing as you suggest. It may be rather that there are no laws authorising the IRS to do what you suggest. What you are proposing is that the IRS affect your legal rights on the basis of assumptions. Of course, legislation can authorise a government body to do that, but absent such legislation it is not likely to be legal.
Isn’t the legal reason that the IRS is a government agency and doesn’t just decide new practices out of the blue without asking permission first, and congress is not into changing the tax system in that way?
I don’t know if there is a factual answer to the Original Poster’s question, but there is a reasonable answer: Heads of federal agencies do not unnecessarily antagonize members of Congress or the Senate. During WWII, many of the “dollar a year” men found this out the hard way when they attempted to keep nepotism out of their departments. (Source: Washington at War by David Brinkley)
I also had once had a letter from the the IRS pointing out that I had miscalculated an amount and was due a (slightly) larger refund.
Yet many countries, including the UK, managed it. The point is that if you work for a salary, and your tax circumstances don’t change (like most of us) HMRC can just happily carry on taking whatever percentage the current government demands from your pay. Of course, it was only the wealthy that paid tax in the early days.
There has to be a system for letting them know when circumstances change, and a separate system for people who do not get a monthly salary, but it does work and it did work when it was all on paper.