Thursday, January 8, 2009


National Taxpayer Advocate Nina E. Olson released her annual report to Congress yesterday, stating that the complexity of the Tax Code is the most serious problem facing taxpayers.

Last January’s report listed “the frequency and magnitude of late-year changes to the tax code” – i.e the irresponsibility of Congress - as the most serious problem facing taxpayers.

In discussing tax complexity the report estimates that U.S. taxpayers spend $193 billion a year complying with income tax requirements, an amount that equals 14 percent of the total amount of income taxes collected. One count shows the number of words in the Tax Code has reached 3.7 million, and over the past eight years, changes to the tax code have been made at a rate of more than one a day – including more than 500 changes in 2008 alone. Individual taxpayers now find the tax rules so overwhelming that about 62% pay a preparer to do the job and another 22% purchase tax software.

Here is one example cited in the report of how complex the current tax system is. The Tax Code provides tax breaks to encourage taxpayers to save for education and retirement. However, the number of such tax incentives has grown to at least 27 and the eligibility requirements, definitions of common terms, income-level thresholds, phase-out ranges and inflation adjustments vary among the provisions. This complexity undermines the intent of the incentives, as taxpayers can only respond to incentives if they know they exist and understand them.

The report includes a series of legislative recommendations #1 of which is to repeal the dreaded Alternative Minimum Tax (AMT). Other recommendations include streamlining education and retirement savings tax incentives, simplifying the family status provisions of the tax code, simplifying the rules under which workers are classified as employees or independent contractors, reducing sunset and phase-out provisions, and revising the overall penalty structure

Nina also wants to “place self-employed taxpayers on an equal footing with their wage-earning counterparts” by allowing the Self-Employed Health Insurance Deduction to reduce net earnings from self-employment - and therefore reduce self-employment tax, and to allow the mileage deduction for charitable travel to be adjusted annually by the IRS, as is currently the case with the standard mileage allowance for business, medical and moving travel. As it now stands Congress sets the charitable standard mileage allowance, and has not raised it in several years (current rate = 14 cents per mile).

She continues to call for Congress to regulate “unenrolled” tax. The report notes that 62 percent of taxpayers use preparers, yet anyone can now be a “preparer” – with no training, no licensing and no oversight required.

I wholeheartedly agree with all of the above listed legislative recommendations. I also support registration of unenrolled tax preparers - I am just against requiring all unenrolled tax preparers - regardless of years of experience - to take a test to be registered, as is called for in current pending legislation.

Do you think Congress will listen?

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