Another Peek at the IRS

Why bother? Most of us have already paid our taxes and received our refunds, if any. My concern is looking ahead. Here is a brief peek at some things your may or may not know. Nina Olson heads the Taxpayer Advocate Service, an independent division within the IRS and reports on problems which need attention.

She suggests that the biggest problem facing the IRS is the complexity of the Internal Revenue Code. She continues. Individuals and businesses spend 7.6 billion hours a year filing out tax form for the IRS. This does not include hours spent when responding to an IRS notice or an audit. The cost of complying to the code amounts to $193 billion or possibly considerably more.

The number of words in the code has increased by 2.3 million since 2001. In 2008 there were more than 500 changes to the tax code and other surveys have suggested that the code has been amended some 14,000 times since the mid-1980's.

No wonder we have a problem. Individuals have found the tax preparation process so overwhelming that more than 80% pay transaction fees to help them file their returns. Whether this includes “free” services rendered to aging and needy taxable clients I am not sure. Or the free services for sending a return electronically (after all, ultimately rarely anything is “free”).

Then there is the controversial alternative minimum tax enacted some years ago. In 1970, 20,000 were affected by it; in 2010 it is estimated that 33 million will be involved. So far, Congress, unwilling to abolish the AMT, has “whacked” the tax so that about 4,000,000 tax payers are affected. Originally this tax was aimed at the wealthy who often were able to find loopholes or deductions.

Solutions have been tried with limited success. Too often they require complicated tax files which are almost impossible to decipher if they can be found. Lack of simplicity seems to be at fault in many instances causing improper claims by taxpayers as well as improper responses by the IRS.

In my humble opinion (which isn't aways so humble), I see a couple possible solutions: 1. To scrap the entire IRS code and begin again (probably impossible) or 2. To go to a flat, simplified tax. If so, many would lose certain cherished deductions, but the total result could be ultimately beneficial. An alternative could be some form of value added tax based on consumption. The frugally thrifty would benefit most.

In short, we must keep on peeking into the IRS with more skill and a higher expectation. Seems fair as the IRS is quite good at peeking itself.