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Complexity Is Tax Issue Number 1

The Tax Foundation reports the IRS's National Taxpayer Advocate has released the 2010 annual report to Congress, a report required by the Internal Revenue Code, which requires the report “to identify at least 20 of the most serious problems encountered by taxpayers and to make administrative and legislative recommendations to mitigate those problems.” The Tax Foundation summarizes the first two problems that are the most significant:

“The first problem identified in the report is the complexity of the Internal Revenue Code. At 3.8 million words, the tax code is over 11,000 single spaced pages and, reading at 300 words per minute, it would take a person almost 9 complete days to read the entire thing. The Taxpayer Advocate Service estimates that taxpayers spend 6.1 billion hours a year doing their taxes, which equates to over 3 million Americans working full-time — greater than the number of teachers, professors and librarians combined. This time spent on taxes translates to a cost of $163 billion, based on hourly wage rates . . . An estimated 60% of individuals employ tax preparers to do their taxes for them, adding to the cost imposed on taxpayers. The Taxpayer Advocate recommends a vast reduction in tax expenditures — deductions or exemptions built into the tax code — while also lowering the overall tax rates to reduce the burden on most Americans.

“The second serious problem with the IRS is its movement from a collection agency to an agency that also distributes benefits. With the passing of Health Care Reform, the IRS has been tasked with distributing benefits for multiple provisions in the legislation . . . The National Taxpayer Advocate recommends the restructuring of the IRS to create an office dedicated to the distribution of benefits. She also recommends revising the mission statement of the IRS to include its role as a distributor of benefits and highlight its need for additional funding for those actions.

The Taxpayer Advocate also is required to identify “the ten tax issues most litigated in federal courts, classified by the types of taxpayers affected in order to mitigate disputes that result in litigation.

In addition, the Taxpayer Advocate is also "establishing a vehicle to receive taxpayers’ suggestions about tax reform, writing:

“taxpayers will be able to access this site at http://www.taxpayeradvocate.irs.gov through our newly designed internet site dedicated to taxpayer rights and education. We ask that taxpayers approach this with the frame of mind that everything – even the tax breaks that benefit them or their businesses personally – should be on the table. What would they be willing to give up if they knew that others are giving up their breaks and the end result would be a much simpler system – one in which the average taxpayer might be able to prepare his or her own tax return? What particular provisions of the existing tax system are especially burdensome or seem particularly unfair?  So, let us know .  We promise to track these suggestions and post them, periodically, thereby helping to further the cause of tax reform and tax simplification.”

Spend some time with the National Taxpayer Advocate's entire report, and obtain a more indepth understanding of the problems of the Internal Revenue Service. Although the accompanying press release is three pages, it provides a good summary of the report.


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