Is This the Future of “New Law”?

new law 1Imagine a world in which one of the two certainties of modern life – taxes (the other is death… you know the quote) – was simple, easy, and most amazingly, fast. (Now try reading that last sentence with the music for John Lennon’s Imagine playing in your head… now try not hearing that music. Sorry.)

Think about it – most of the information you include in your taxes is already in your previous year’s version. Of the information that’s not, most of it has already been submitted to the IRS and state revenue agencies by the respective banks, lending institutions, medical institutions and other large corporate entities that process information considerably faster than you do. Want proof? Most of those valuable “Forms” that get sent to you containing information on your health savings account or your student loan interest statements have already been received, and approved by, the IRS.

So why isn’t there a free, online way to file your taxes that can be completed in a couple of minutes?

TurboTax, that’s why.

The Problem: Free, Simple Online Tax Returns

For years, legislators have attempted to find a way for taxpayers to file their taxes simply and quickly. The laws, supported by both Presidents Ronald Reagan and Barack Obama, and currently in place in several European countries, would allow taxpayers to file their taxes based on information already collected by the government, with the option for individuals to adjust or modify the information where needed. (Honestly, how many times have you entered a number other than the ones on the forms you receive, anyway?)

Such a system would potentially save middle-income Americans thousands of hours and millions of dollars every year, and would likely be more accurate. Unfortunately, such a system “present[s] a continued competitive threat to [TurboTax’s] business.

That’s right, Intuit, the company that owns TurboTax (which accounts for about 35% of Intuit’s $4.2 billion in 2013 revenue), views allowing taxpayers to file their taxes online as a threat to their business model, not as a welcome technological advance that will benefit consumers.

The Solution: Prevent Simple Tax Returns, At All Costs

Intuit isn’t taking this threat by adopting an innovative business model or adapting their services. No, they’re responding in a much more American way – lobbying the hell out of Congress and sponsoring deceptive Astroturf movements against any such measure. According to disclosures, Intuit spent $2.6 million on lobbying efforts in 2013 alone, much of it going to opposition to four different bills aimed at free tax filing. The $11.5 million Intuit spent over the last five years is more than either Amazon or Apple over the same time.

The New Law Business Model: We’re Cheaper Than A Lawyer

What does this have to do with “new law”? Well, everything actually.

I’ve made no secret of my opposition to “deregulation” of the legal industry in the United States (see my article on the subject, part 1 and part 2). However, there is an expanding business model in the US, pioneered by companies like LegalZoom, that does for legal forms what TurboTax does for taxes, which exists in a massive ethical gray area in the current, regulated system.

Although LegalZoom has claimed that they do not provide “legal advice” in response to the numerous lawsuits that have been filed against them, they advertise themselves as a legal services company. For a fee, LegalZoom will guide you through various legal documents, allowing you to prepare and file them without an attorney. Importantly, as LegalZoom pointed out in response to various lawsuits, these forms have been freely available to the public for years, without requiring an attorney. For example, forms to create a small business are freely available on the website of most Secretaries of State. While I question some of their practices, I do not believe that LegalZoom’s model, when they adhere to the above-listed claims, likely does not technically constitute the practice of law.

However, LegalZoom, and many other companies are seeking to become the TurboTax of legal forms. Online firm Clearpath, Inc., has openly declared its desire to become the TurboTax of Immigration Law.

What If Something Is Cheaper Than New Law?

The basic problem with this particular business model is that it relies entirely on the premise that the service these companies provide is the inexpensive alternative to hiring a lawyer. That’s how TurboTax and other online tax preparation services took the business of accountants following the initiation of online tax filing in 1986 – a copy of TurboTax is cheaper than hiring an accountant! Intuit’s business model relies on being the inexpensive, convenient option for taxpayers in order to survive.

new law 2Remind you of anyone?

Many of the “New Law” advocates push services like LegalZoom and non-lawyer ownership of law firms as the great panacea, the inevitable and obvious solution to the problems of the legal system. However, we should always look to history as a guide before we irrevocably alter the system and provide these companies with a massive windfall. What will these companies eventually do with this largess?

For me, it’s hard to see Intuit’s attempts to prevent fast, free filing of tax returns being successful forever. Sooner or later, I assume, they’ll lose. (However, given the way our legislators cater to their financial benefactors, it’ll probably be a while.)

Inevitably, the services offered by LegalZoom, and others, will no longer truly be the most efficient, inexpensive option. Just like TurboTax, the services offered by these companies could technically be done by non-lawyers today. Creating an LLC, drafting a will, and preparing divorce paperwork can be done by pretty much anyone with access to their state government’s website. For free.

Unless LegalZoom considers the availability of those forms to be a “competitive threat” to their business model, and lobbies to have them removed.