Thursday, June 18, 2009


According to its website, “The Treasury Inspector General for Tax Administration (TIGTA) was established under the IRS Restructuring and Reform Act of 1998 to provide independent oversight of IRS activities. TIGTA promotes the economy, efficiency, and effectiveness in the administration of the internal revenue laws. It is also committed to the prevention and detection of fraud, waste, and abuse within the IRS and related entities.”

In some respects TIGTA is like the “Internal Affairs” department of the IRS. It also issues reports and makes recommendations to both the IRS and Congress, and, like the Taxpayer Advocate Office, submits a semi-annual “Report to Congress”.

In one recent report TIGTA made the following suggestion to the IRS -

The Internal Revenue Service (IRS) should increase its efforts to educate elderly taxpayers about potential exemptions from withholding tax on certain retirement payments in order to reduce unnecessary tax return filings, according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

While the IRS' public website,, instructs taxpayers on how to determine whether to file a Federal tax return and if income tax withholding is necessary, printed publications, such as the instructions for filing IRS Form 1040, do not expressly state whether taxpayers should continue to have income tax withheld on Social Security, pension and annuity payments.

In August 2007, TIGTA issued a report examining the characteristics of unnecessarily filed individual income tax returns (
Reference Number 2007-40-130, August 17, 2007). That report found that more than 8 million tax returns were unnecessarily filed in 2003, 2004 and 2005. Eighty-five percent of those returns were filed to obtain a refund of taxes withheld.”

Basically the report says that 8 Million + unnecessary tax returns with no tax liability are filed by senior citizens each year, most of which are simply to get a refund of federal income tax withheld from pensions.

This is similar to the fact that there are also many unnecessary tax returns filed by dependent children simply to get a full refund of federal income tax withheld. I discussed this issue in some detail back in 2007 in my post “Dependents and Income Tax Withholding”.

I also agree that many seniors should also refrain from having federal income taxes withheld from pension income if they consistently have “0” tax liabilities on the Form 1040 (or 1040A) each year. However I also realize that there are seniors who would rather be “safe than sorry” and have tax withheld as an arse-covering measure “just in case” so they will not have to write a check to their Uncle Sam at tax time.

I do advise clients who do not need to have tax withheld from pensions and annuities to stop doing so, but do not make an issue of it if they want to cover the arse. The problem I have is not with senior clients who have tax withheld from such income unnecessarily – but with those with tax liabilities who do not have any, or enough, federal or state tax withheld.

In another report TIGTA told the IRS that changes should be made in the layout and typeface of 1040 individual tax forms, including more use of boldface, colors and explanations, to help reduce taxpayer errors.

According to the
report, each year the IRS sends out more than 7 Million notices to taxpayers informing them of math errors on their tax returns. TIGTA thinks that more than 2.3 Million of those errors could have resulted from unclear or inadequate forms and instructions. An analysis of taxpayer errors on 2005 tax returns identified three areas where modifying the 1040 and its instructions could reduce errors - computing the deduction for personal tax exemptions, the omission of dependent Social Security numbers or Individual Taxpayer Identification Numbers, and children claimed for the Child Tax Credit who exceeded the age limit.

The report says that taxpayers made more than 210,000 errors computing their exemption amounts. Another 170,000 taxpayers failed to include their dependent’s SSN or ITIN on the 1040, and approximately 137,000 taxpayers were denied the Child Tax Credit in 2006 because the child’s age exceeded the age requirement.

TIGTA recommends that the IRS use improved labeling and include the use of bold type to draw attention to instructions. Other suggested changes to the Form 1040 include adding language explaining the purpose and description of the exemption line, a statement that a SSN or ITIN is required for each dependent claimed, and the inclusion of the qualifying age requirement necessary to claim the Child Tax Credit. TIGTA also recommended that the IRS seek Congressional approval to use additional colors on tax returns and instructions to highlight important warnings and information.

I don’t know – a multi-color 1040? I am used to the light blue color of the form, just as I am comfortable with the red color of the NJ-1040 (appropriate – considering NJ’s financial situation). While I would agree that in some cases IRS instructions and “prompts” could be improved or more effectively highlighted I don’t think I would want a “more colorful” 1040.


1 comment:

Bruce said...

I'd have to agree somewhat with TIGTA. A few highlighted areas would help those who insist on preparing their own returns.