US National Taxpayer Advocate Calls For Tax Code To Be Simplified

by Mike Godfrey, Tax-News.com, Washington

13 January 2005

The complexity of the Internal Revenue Code is the most serious problem facing both taxpayers and the IRS alike, according to a report released to Congress by the National Taxpayer Advocate, who called for tax laws to be simplified.

According to the report, the alternative minimum tax (AMT), the earned income tax credit (EITC), and the large number of provisions designed to encourage taxpayers to save for education and for retirement are cited as the major sources of complexity, helping to swell the tax code to around 1.4 million words.

“Without a doubt, the largest source of compliance burdens for taxpayers and the IRS alike is the overwhelming complexity of the tax code, and without a doubt, the only meaningful way to reduce these compliance burdens is to simplify the tax code enormously,” National Taxpayer Advocate Nina E. Olson wrote in the report.

Olson also noted that the IRS is trying to compensate for budget constraints by expanding its use of centralized, automated examination and collection processes, whilst simultaneously limiting processes that require human intervention or contact, a move she suggested “can create problems for the tax system as well as for taxpayers.”

To help protect taxpayers, Olson urged the IRS to bolster support for “safety valves” like the offer in compromise program, collection due process proceedings, the Taxpayer Advocate Service (TAS), and an independent Office of Appeals.

However it is the Alternative Minimum Tax that is cited as one of the largest problems in terms of taxcode complexity, and Olson says the issue has not been adequately addressed.

“The need for AMT relief looms like the proverbial elephant in the room, and for that reason we once again, for the third year, recommend its repeal.”

Additionally, the report recommends that Congress simplify certain tax burdens on small businesses, streamline and simplify tax incentives for education savings and spending, and streamline and simplify tax incentives for retirement savings.

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