Major Overhaul of Tax Code Warranted

Earlier this week the Senate Finance Committee held hearings which IRS attorneys say revealed harmful inequities and unnecessary complexity associated with the U.S. Tax Code. While the testimony came as no surprise to most IRS tax lawyers, the revelations were never the less remarkable.

According to IRS tax attorneys following the hearings, testimony from the Government Accountability Office (GAO), the Taxpayer Advocate (TPA) and small business owners suggested the tax code is too complex, unfair, and that IRS “heavy-handed” enforcement prompts reluctance in taxpayers to take proper action.

One issue raised during the testimony involved the cost of compliance. IRS attorneys report that Michael Brostek, Director, Tax Policy and Administration, testified the cost of compliance was too high and required too many man-hours. Further, these IRS tax lawyers say the GAO found reporting error rates were higher among paid tax return preparers (56%) versus individual taxpayers preparing their own returns (47%).

Perhaps even more disconcerting, according to IRS tax attorneys, was testimony from Nina Olsen, the Taxpayer Advocate, that a significant portion of noncompliance was not related to underreporting or tax evasion, but rather errors caused by the tax code’s needless complexity. Ms. Olsen testified that while only 3% of the IRS’s tax collections were due to enforcement actions, the IRS’s own statistics revealed that 67% of all
noncompliance was caused by inadvertent mistakes.

If fact, IRS attorneys say Ms. Olsen’s testimony, which consumed 48 pages, detailed problems with overly burdensome and flawed provisions within the tax code which contributes to the system’s inefficiency and promotes errors and noncompliance issues. Similarly, small business owners appearing before the Senate Finance Committee echoed the Taxpayer Advocate’s concerns.

IRS tax lawyers following the testimony claimed the GAO, TPA, and small business owners were correct. The tax code requires comprehensive overhaul in order to simplify a system which is too costly and inefficient. Small businesses struggling to stay compliant spend millions each year hiring IRS tax attorneys and other tax professionals to sort through the vagaries and complexities of the law. The results of the current system are evident: the government has higher error rates meaning it collects less taxes and spends more to do so; businesses pay more than they should to stay compliant meaning they have to hire outside help and use more internal resources resulting in less revenues to run and grow their businesses, and taxpayers feel overwhelmed by a system which is perceived as both unfair and unnecessarily complex further affecting overall compliance. It is for these reasons that IRS attorneys and the vast majority of the public say it is time to change tax code.

 

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