About two weeks ago, I got a letter from the IRS telling me that I owe an extra eight-thousand dollars from my 2020 return, with a $1000 fine and $200 interest as a result. [1]

I'm not mad about owing the money, but what annoys me is if they have enough information to know that I underreported, then why am I part of this equation to begin with? Clearly they have enough of my tax data to know I screwed up, so why don't they just send me a bill once a year? I don't see why Intuit (or HR Block or TaxAct or Jackson Hewitt etc) need to be part of this transaction at all.

[1] It was an honest mistake on my end, I forgot to report a sizeable stock sale I did in 2020.

As others have noted, the IRS doesn't know everything, and some things may be to your advantage to report to them. They could send you a bill and ask you to fix it, but many people wouldn't know where to look to find mistakes.

For example: RSUs and NQSOs (employee stock grants) are in my experience handled extremely poorly by default. If I have RSUs vest when the stock is worth $10 a share, then I pay income tax that year based on income of ($10 x share-count). If I sell those shares later on, my brokerage reports to the IRS either: unknown basis value or $0 basis value. The correct basis value is $10 per share. There's a spot in the tax forms where you can tell the IRS that you have the corrected basis, but if you don't do this, you will pay extra tax, and it's an easy one to miss, especially if you're just importing the 1099-B.

At tax time my brokerage does send me additional forms beyond the 1099-B that include the corrected basis values, so its not that they don't know the right value, they just don't give it to the IRS directly. I assume this is due to IRS/congress rules and not my brokerage being obnoxious.

> As others have noted, the IRS doesn't know everything, and some things may be to your advantage to report to them.

Sure, and I'd be ok with giving people the option to deny the default return and file their own using Intuit or something. For people like me, who don't have the ambition to try and do anything clever with taxes, I'd be ok with the default return that they generate from all the information sent via my employer and banks.

This is how it works in a lot of other countries. You get a pre-filled return and can accept it or file on your own.

> They could send you a bill and ask you to fix it, but many people wouldn't know where to look to find mistakes.

Then people in that situation can do it from scratch like they're already required to do now. This is really not an issue anywhere else - this change wouldn't make the process harder for anyone.

I also have to deal with the cost basis issue every year, and it’s the biggest headache in the entire process for me and my partner. I don’t understand why the brokerage can’t provide the correct basis directly — it would lead to way fewer mistakes and more accurate returns.

> They could send you a bill and ask you to fix it, but many people wouldn't know where to look to find mistakes.

The overwhelming majority of people do not have complicated taxes. That is the exception and as others have pointed out, they could hire an accountant just like they do today.

Having the IRS mail out your bill would eliminate the need for most people to purchase accounting software each year, which is exactly what Intuit doesn't want.

Wait, do brokerages report stock sales to the IRS?

Yes, of course.

> A broker or barter exchange must file Form 1099-B for each person: > For whom the broker has sold (including short sales) stocks, ... etc., for cash

https://www.irs.gov/instructions/i1099b

To elaborate on the GP comment, the issue is not whether the brokerage reports, but how they do it. You generally compute capital gain income as (sale price) - (acquisition price). If you buy a stock on the market and sell it, brokers generally report both sale price and acquisition price to you and the IRS.

But for employee stock compensation, the broker can report sale price without acquisition price to the IRS. If you don't report the acquisition price yourself, the IRS will think that it's 0, and assume your income is much higher than the real value.

If it's the first time you've screwed up the return, you might try calling them and ask to have the penalty waived or reduced. That works pretty often on first-time penalties.

You know, it didn't even occur to me to try that. I'll give it a go tomorrow.

It's called a "first time abatement": https://www.irs.gov/businesses/small-businesses-self-employe...

General penalty relief: https://www.irs.gov/payments/penalty-relief

I just went through this for an honest mistake as well, though I didn't qualify for a first time abatement. It took months to get a response as well.

Prepare to wait on hold for hours, probably trying for multiple days. They are woefully behind.

I believe your best chance is dialing in right when they open, before the call queues build up. Also the folks answering the calls are in a better mood then, and you're more likely to get the outcome you're looking for.

It's too bad they're so far behind now. It used to be fairly painless to reach a human at the IRS, and they are usually pretty helpful. Kind of the opposite of what a lot of people expect.

Worked as a temp for the IRS equivalent in my country. The degree of understanding and professionalism was unexpected. We were just overworked, mostly because the systems were really not up to date and had a few directives that were a bit inhumane (first time asking for a delay=> ok in all cases, no explanation needed. 4th time=> NOK in all cases, expect interests.). For people who couldn't afford the taxes, we had really knowledgeable people taking a lot of time finding ways of rebating taxes, people who could make 10x working as taxes lawyers and making a better job at it than actual lawyer (in my skewed perspective, don't quote me on that).

You can file taxes without a software package, if you want. You have to file because they want you to report things they don't know about, and also if you want to claim itemized deductions.

Here in Norway, the government fills out our tax forms for us with all of the information that has been reported to them by our banks, our employers, etc. It is then our responsibility as tax payers to look over the tax forms, add anything not included, and adding any additional claims for deductions.

By comparison, the needless busywork that the IRS puts the tax payers through is nothing short of ridiculous really. It only serves to waste time and effort, and there is plain and simple no reason whatsoever why the IRS could not do it like Norwegian tax authorities does. Our system here in Norway is not perfect either, but the citizens of the United States, and the US government, would benefit hugely from a tax filing system built to help you file taxes the way that ours does for us.

The basic elements are not much busywork at all. For a person with only wage income, or maybe even a little interest & dividend income and perhaps one contracting payout, its pretty simple.

The busywork comes mostly from the arcane and convoluted nature of US tax code, notably the parts that describe deductions and credits. US governments use such things as a way to implement policy, and the crap just piles up over time. Can you deduct X? How much of X can you deduct? Are you eligible for a credit? Or just part of a credit? Or none of it? etc. etc.

It'd be great if they just billed me and I was on the hook for correcting them however. The current method is doing math homework under penalty of being fined.

> I'm not mad about owing the money, but what annoys me is if they have enough information to know that I underreported,

There's some chance that they didn't have enough information to know that until you filed. Maybe.

> need to be part of this transaction at all

Because Capitalism, in essence, is the optimization of one particular group’s ability to alter how people live their lives in a way that transfers the most wealth from the working class.

America’s economy is a house of cards built around financial middlemen.

I think you meant cronyism.

If you can find an example of the former that doesn't devolve in short order into the latter, I think you can "I think you meant" him.

I have looked, and I am still waiting.

Capitalism without cronyism isn't something people would recognize as capitalism.

Americans would probably still decry it as socialism or communism even though it is very far away from those.

How did the IRS learn about the stock sale?

I'm assuming that E*Trade sent them my consolidated tax form last year (that I forgot to enter in my tax software), but I don't know for sure.

Contact your congressperson and encourage others to do so too. Also contact their opponent in the upcoming election to make it a campaign issue.

I actually did pour blood and sweat to a campaign that did have this as one of their policies. I don't think this can be solved until lobbyist money and the Senate is fixed. Even if there's 90% support for an issue, politicians follow the money.