California seeks to make taxes easy

ReadyReturn will let some taxpayers use prefilled returns

California Franchise Tax Board ReadyReturn pilot

California Franchise Tax Board officials are moving forward with a test program to provide basic tax filers with an easier option for returns.

Board officials say the ReadyReturn program is an option for simplified filing, like the state's redesigned EZ forms. With the pilot program, they will offer online services and free e-filing next year, said Denise Azimi, a spokeswoman for the board.

"We can't affect the tax code, but we strive to make filing as easy as possible," she said.

ReadyReturn is for citizens who file basic returns, which includes earning their only income from wages, taking a standard deduction and not investing in retirement accounts. State officials have much of those citizens' tax information already printed on W-2 forms.

Citizens who meet the criteria will receive a prepared return in the mail, or they can view it online at a Web site officials will set up for that purpose. In both cases, they only have to check the accuracy of the information.

Internal Revenue Service officials examined the idea of return-free filing in a 2003 study, following a congressional mandate to develop such a system by 2007. More than 30 countries, including Great Britain and Japan, offer some kind of return-free system for filing and paying taxes.

But IRS officials said in 2003 that it would be difficult to set up return-free filing on a large scale because of a complex federal tax code.

California officials will send invitations to a certain number of eligible taxpayers in February 2005, Azimi said. If enough people accept, board officials will consider offering ReadyReturn as a permanent option for California taxpayers. But if acceptance is low, the test will end and officials will likely terminate the program, she said.

A benefit of ReadyReturn would be fewer mistakes on forms, which take time and effort to fix, Azimi said.

"You'd be surprised at the number of people who make mistakes," she said. "It just gets ridiculous, because we have all the information and could fill it in without mistakes the first time."

Officials at Americans for Tax Reform, a group that lobbies for lower taxes, generally approve of efforts to simplify filing. But members expressed concern that prepopulated returns could increase the potential for harm to taxpayers.

Among other factors, "taxpayers will be reluctant to challenge the state-

approved tax liability, and the state will have an incentive to collect more money by minimizing legitimate deductions and exemptions," wrote Grover Norquist, the group's president, in an August letter to California Gov. Arnold Schwarzenegger.

Members of the tax software industry also oppose the test program. Some said that a shift to state-prepared tax returns would hurt growth and innovation in their industry.

Other tax industry officials said a tax compliance system based on direct billing would be unpopular.

"The government would make that first determination of what you earned and what you owed, and you could challenge that if you wished," said Bernie McKay, vice president for government affairs at Intuit, a tax software company. Such a system "would fundamentally change the process of taxation as we've done it in this country," he said.

Leonard Holt, vice president for operations at the tax software company Universal Tax Systems, agreed with McKay that the California experiment sets a bad policy. "People want to take responsibility for their own financial situation," especially with regard to taxes, he said.

Florence Olsen contributed to this article.

New online option

California's experimental program, known as California ReadyReturn, could determine whether the state's Franchise Tax Board can offer taxpayers an easier choice for filing taxes. Under the pilot program, tax officials will prepare a completed tax form that citizens simply verify.

In February 2005, state officials plan to invite citizens filing simple returns to participate in the program. To qualify, their only income must be from wages, they must take the standard deduction, and they must not have contributed to retirement accounts. Participation will be voluntary.

The invitation to taxpayers will include how to:

* View their returns online.

* Make changes and corrections.

* Have a refund deposited directly into a bank account.

* File their returns electronically.

* Turn down the invitation.

Source: California Franchise Tax Board

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