Alternative Minimum Tax Represents Number One Taxpayer Problem, Says Report

by Mike Godfrey, Tax-News.com, Washington

16 January 2004

National Taxpayer Advocate Nina E. Olson, on Wednesday released a report to Congress which identified Alternative Minimum Tax (AMT) as the most important problem being faced by US taxpayers.

“Although the AMT was originally enacted to prevent wealthy taxpayers from avoiding tax liability through the use of tax avoidance techniques, it now affects substantial numbers of middle-income taxpayers and will, absent a change of law, affect more than 30 million taxpayers by 2010,” Olson writes in the report.

According to the report, by 2007, nearly 95 percent of AMT revenues will be attributable to personal and dependent exemptions, the standard deduction, state and local taxes, and miscellaneous itemized deductions. Olson recommends that Congress repeal the AMT or, alternatively, make changes to lessen the impact on middle-income taxpayers.

The annual report, which is required by law, contains three major sections, including: Most Serious Problems Encountered by Taxpayers; Key Legislative Recommendations; and a list of the Most Litigated Tax Issues.

This year's report reaffirmed the importance of balancing taxpayer privacy against the Revenue’s role in enforcing compliance initiatives.

“The promise that we will hold taxpayers’ highly personal information in confidence forms the basis of all tax administration. Every proposal to create an exception to that promise must be balanced against the potential impact it will have on taxpayers’ continued willingness to provide that information to the IRS,” Olson observed.

The second most important taxpayer problem according to the report is “the $132 billion tax gap attributable to income not reported by self-employed persons ($81 billion is attributable to independent contractor sole proprietors).”

Olson proposes a legislative solution to this problem, recommending that that Congress enact a withholding requirement on payments to certain categories of non-wage workers.

The other top taxpayer problems include Earned Income Tax Credit (EITC) compliance strategy, the IRS Appeals implementation of the Collection Due Process program, and the administration of Individual Taxpayer Identification Numbers (ITINs).

Recommended