They actually do know many of those things--e.g., mortgage interest you get in a 1098 is also filed with the IRS. There is no reason the IRS couldn't pre-prepare returns based on what is already required to be filled with them and precomputed taxes based on them, and still provide you the option of providing additional data. It would be easier for those work no additional info but also for those who needed to put some additional info, as a lot of the work that needs done now would already be done.
Well, there is a reason, and is that tax preparation software and services companies spend lots of money lobbying Congress to keep the existing system since simplified filing would kill much of their business.
I used to be in an investment partnership and prepared the tax returns for said partnership. We filled the return out and sent it to the IRS in parallel with the members getting their K1 forms. The members actually got the forms before the IRS did. In order for the IRS to know what each member should have on their return the IRS would have to process the business' return first.
All those other forms are the same way. 1098s and 1099 are sent to the IRS at the same time they are sent to the taxpayers. The IRS takes who knows how long to process those forms from all the various generators, and it is highly likely that most people are done with their tax returns before the IRS gets to the forms submitted by the banks and brokerages. Same thing again for W2s.
So yes, the IRS has all this information. Eventually. They do not have it by the deadline they set for people to make their tax accounts right.
That the IRS does not have all of the necessary information until after individual tax returns are due is probably because people have to file their own taxes. They don't need those forms until people file their own taxes, because they don't need to verify until after the taxes are filed. That can be changed, if we want the IRS to send people provisional reports that say, "Here is what we think [you owe | we owe you]. If you agree, sign and return. Otherwise, file using the appropriate forms."
> So yes, the IRS has all this information. Eventually. They do not have it by the deadline they set for people to make their tax accounts right.
To the extent that is true for some information simply due to filing and delivery deadlines and processing times for various forms, the policy changes necessary to rectify it are fairly trivial to implement alongside any provision allowing IRS precomputation.
Well, there is a reason, and is that tax preparation software and services companies spend lots of money lobbying Congress to keep the existing system since simplified filing would kill much of their business.