National Taxpayer Advocate Releases 2005 Report to Congress;
Stresses Need for Fundamental Tax Simplification
WASHINGTON — National Taxpayer Advocate Nina E. Olson today released a report to Congress that urges Congress to enact fundamental tax simplification.
“Our tax code has grown so complex that it creates opportunities for taxpayers to make inadvertent mistakes as well as to game the system,” Olson writes. “As taxpayers become confused and make mistakes, or deliberately ‘push the envelope,’ the IRS understandably responds with increased enforcement actions. The exploitation of ‘loopholes’ leads to calls for new legislation to crack down on abuses, which in turn makes the tax law more complex. Thus begins an endless cycle – complexity drives inadvertent error and fraud, which drive increased enforcement or new legislation, which drives additional complexity. In short, complexity begets more complexity. This cycle can only be broken by true tax simplification, followed by ongoing legislative and administrative discipline to avoid ‘complexity creep.’”
Olson states that the tax code should be revised to incorporate six core principles:
(1) It should not “entrap” taxpayers.
(2) It should be simple enough so that taxpayers can prepare their own returns without professional help, simple enough so that taxpayers can compute their tax liabilities on a single form, and simple enough so that IRS telephone assistors can fully and accurately answer taxpayers’ questions.
(3) It should be written in a way that anticipates the largest areas of noncompliance and minimizes the opportunities for such noncompliance.
(4) It should provide some choices, but not too many choices.
(5) It should not necessarily avoid refundable credits but, if it includes them, it should design them in a way that is administrable.
(6) It should require a periodic review of its provisions – in short, a sanity check.
The report also makes legislative recommendations to reduce noncompliance in the “cash economy”; to simplify the Code’s family-status provisions; to revamp the rules governing joint-and-several liability on joint returns as well as community property in the collection of tax; to require brokers to track and report cost basis for stocks and mutual funds to both investors and the IRS; to lessen the burdens of tracking the cost basis of stocks and mutual funds if the current-law step-up in basis on death is eliminated as scheduled in 2010; and to restructure and reform the Code’s collection due process (CDP) provisions.
Stresses Need for Fundamental Tax Simplification
WASHINGTON — National Taxpayer Advocate Nina E. Olson today released a report to Congress that urges Congress to enact fundamental tax simplification.
“Our tax code has grown so complex that it creates opportunities for taxpayers to make inadvertent mistakes as well as to game the system,” Olson writes. “As taxpayers become confused and make mistakes, or deliberately ‘push the envelope,’ the IRS understandably responds with increased enforcement actions. The exploitation of ‘loopholes’ leads to calls for new legislation to crack down on abuses, which in turn makes the tax law more complex. Thus begins an endless cycle – complexity drives inadvertent error and fraud, which drive increased enforcement or new legislation, which drives additional complexity. In short, complexity begets more complexity. This cycle can only be broken by true tax simplification, followed by ongoing legislative and administrative discipline to avoid ‘complexity creep.’”
Olson states that the tax code should be revised to incorporate six core principles:
(1) It should not “entrap” taxpayers.
(2) It should be simple enough so that taxpayers can prepare their own returns without professional help, simple enough so that taxpayers can compute their tax liabilities on a single form, and simple enough so that IRS telephone assistors can fully and accurately answer taxpayers’ questions.
(3) It should be written in a way that anticipates the largest areas of noncompliance and minimizes the opportunities for such noncompliance.
(4) It should provide some choices, but not too many choices.
(5) It should not necessarily avoid refundable credits but, if it includes them, it should design them in a way that is administrable.
(6) It should require a periodic review of its provisions – in short, a sanity check.
The report also makes legislative recommendations to reduce noncompliance in the “cash economy”; to simplify the Code’s family-status provisions; to revamp the rules governing joint-and-several liability on joint returns as well as community property in the collection of tax; to require brokers to track and report cost basis for stocks and mutual funds to both investors and the IRS; to lessen the burdens of tracking the cost basis of stocks and mutual funds if the current-law step-up in basis on death is eliminated as scheduled in 2010; and to restructure and reform the Code’s collection due process (CDP) provisions.
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