TurboTax creator Intuit spent big on lobbying to safeguard tax prep industry from potential challenges.

Under threat from government legislation, Intuit Inc., responsible for the creation of the popular tax preparation software TurboTax, significantly amped up on its political lobbying, setting new company records.

Industry giant Intuit Incorporated, the brains behind market-leading tax preparation software TurboTax, has greatly increased its lobbying expenditure to unprecedented levels. This aggressive strategy was adopted in response to looming threats from government legislation which, if successful, could lead to a drastic overhaul of the tax preparation industry, potentially impacting Intuit's business model.

According to data sourced from OpenSecrets.Org, in 2021 Intuit spent over $9.3 million on lobbying efforts, breaking its previous lobbying spending records. It directed this effort towards advocating its interests in issues such as government technology investment, taxation, and financial sector regulation amongst others. This action came as a calculated response in light of the series of challenges the tax preparation industry faced in the last couple of years.

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To understand the context of this unprecedented lobbying budget, one has to delve into the recent history of proposed legislation that could possibly impact businesses, like that of Intuit. In 2019, a bill was introduced in Congress named the Taxpayer First Act (TFA), designed to restructure the Internal Revenue Service (IRS) and improve several aspects of federal tax administration. It contained numerous provisions enhancing taxpayer rights and changing the IRS's organizational structure.

TurboTax creator Intuit spent big on lobbying to safeguard tax prep industry from potential challenges. ImageAlt

However, for the tax preparation industry, one provision stood out: a clause that could potentially pave the way for an IRS-developed free electronic tax filing system. This provision was seen as a potential disruptor to the industry, potentially decreasing reliance on commercial software, such as TurboTax, for tax filing services.

The concept of an IRS-developed free tax filing service isn't new. Taxpayer advocacy groups have been campaigning for this service for many years, citing that it could simplify the tax filing process and save individuals hundreds of dollars in tax filing fees. Phrases like 'return-free filing' and 'pre-filled returns' began circulating, conceivably representing a future where people could bid adieu to the tedious annual ritual of sifting through paperwork or paying for sophisticated tax software.

While this may be a dream for taxpayers, it's a nightmare for companies like Intuit. Their business model is built on the premise of taxpayers using their software to file tax returns. The introduction of a free government-run service introduces considerable competition and threatens the monetary viability of their product. As such, it's no wonder that Intuit took swift, decisive action to pre-emptively address this issue.

By increasing their lobbying expenditure, Intuit aims to have influential voices advocating for their interests in the corridors of power. Over the years, they enlisted key players in Washington, DC. These included Ken Kies, former chief of staff to the Congressional Joint Committee on Taxation and now managing director of the Federal Policy Group, a legislative and regulatory strategic advisory firm.

Interestingly, the company's lobbying efforts stretched beyond the borders of the United States. Intuit hired London-based global consulting firm Teneo to represent its interests before the Organisation for Economic Co-operation and Development (OECD), a global forum where governments work together to address the economic, social, and environmental challenges of globalization.

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It's not just Intuit that's apprehensive of the proposed bill. The American Coalition for Taxpayer Rights (ACTR), a collective of tax service companies and trade associations that represent tax industry interests, also took a stand. The coalition, whose members include giants like H&R Block and Jackson Hewitt Tax Service, lobbied against the proposed free filing system.

ACTR stated that it could lead to conflict of interest if the IRS, being the tax collector, also provided free tax filing services. They argued that taxpayers' interests wouldn't be aptly represented in such a system. Instead, they pushed for a voluntary, industry-led solution which they claimed would maintain taxpayer trust and lead to growth in electronic filing.

However, it's crucial to take into account the tax payment structure in the United States, which often involves complex tax deductions, liabilities and ancillary fees. The U.S federal tax code is also notorious for its complexity and bulk, causing substantial confusion and stress for citizens. The advantages of a government-implemented tax-filing system must, therefore, be considered against this backdrop.

Meanwhile, Intuit's lobbying efforts seem to be working in their favor at least partially. A ceiling - also known as the 'firewall provision' - was incorporated in the TFA preventing the IRS from launching any free electronic filing system. This came after negotiations with providers of tax software, thereby safeguarding the interests of the tax preparation industry. However, this doesn't mean their lobbying efforts will cease.

Intuit finds itself in an ongoing battle to remain relevant in a changing landscape. The pressure of future legislations and shifts in industry trends means that the company, and others like it, must continue to invest heavily in lobbying to safeguard their interests. And although they've seen some success, with the TFA, this battle isn't over.

While Intuit's or TurboTax lobbying endeavors have gathered significant media attention, they are not the only ones facing the heat. Other major players in the industry are also stepping up their lobbying game and investing heavily in efforts to shield their interests from legislative changes that could harm their business models. The landscape is set for a fierce contest in this regard.

As these big corporations engage in lobbying, one cannot help but wonder what this means for everyday Americans. Will the voices of those who call for a return-free filing system be drowned out by the deep pockets of industry giants, or will the government eventually provide the free tax filing they desire? The answer to these questions will shape the future of the US tax preparation industry.

Regardless of the outcome, these events emphasize the power of lobbying in influencing the course of legislative processes in the United States. When coupled with significant financial backing, this power can sway the future of entire industries, revealing the intricate and often dauntingly complex relationship between businesses and politics.

Proponents of free tax-filing systems hope that their campaign for taxpayer benefits wins out in the end. It remains to be seen whether the combined power of an entire industry, showcased by record-breaking lobbying spends from companies like Intuit, will be strong enough to fend off changes to the industry for good.