Required New Year reading for every member of the U.S. House of Representatives and the U.S. Senate should be the just-issued annual report of National Taxpayer Advocate Nina E. Olson. The Taxpayer Advocate Service (TAS) is a unit of the federal government’s Internal Revenue Service.

In a section entitled “The Most Serious Problems Encountered by Taxpayers,” Ms. Olson asserts that the single most serious problem taxpayers face is “the complexity of the Internal Revenue Code.” While that fact is certainly not news for taxpayers or Members of Congress, what is news is the incredible amount of time and money taxpayers are spending to comply with an encyclopedic tax code.

TAS analysis of IRS data indicates that individual and business taxpayers spend “6.1 billion hours a year” complying with a tsunami of complex tax-filing requirements. To help us grasp the enormity of that figure TAS says that “it would require three million full-time employees to work 6.1 billion hours, making ‘tax compliance’ one of the largest industries in the United States.” Read more.

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New Year’s Resolution: Simplifying the Tax Code?

Mon Jan 10, 2011

Required New Year reading for every member of the U.S. House of Representatives and the U.S. Senate should be the just-issued annual report of National Taxpayer Advocate Nina E. Olson. The Taxpayer Advocate Service (TAS) is a unit of the federal government’s Internal Revenue Service.

In a section entitled “The Most Serious Problems Encountered by Taxpayers,” Ms. Olson asserts that the single most serious problem taxpayers face is “the complexity of the Internal Revenue Code.” While that fact is certainly not news for taxpayers or Members of Congress, what is news is the incredible amount of time and money taxpayers are spending to comply with an encyclopedic tax code.

TAS analysis of IRS data indicates that individual and business taxpayers spend “6.1 billion hours a year” complying with a tsunami of complex tax-filing requirements. To help us grasp the enormity of that figure TAS says that “it would require three million full-time employees to work 6.1 billion hours, making ‘tax compliance’ one of the largest industries in the United States.”

Translating all this into dollar figures, TAS says that 60 percent of individual taxpayers pay practitioners to prepare their returns and another 29 percent use tax software to help them complete their returns. According to IRS, therefore, the annual dollar cost of this compliance burden for the median individual taxpayer was $258 in 2007.

Even more alarming proof of the Internal Revenue Code’s complexity burden can be found in the complete TAS report: based on Bureau of Labor Statistics data TAS estimates that the “costs of complying with the individual and corporate income tax requirements for 2008 amounted to $163 billion – or a staggering 11 percent of aggregate income tax receipts.”

Even reading the U.S. tax code has become a daunting challenge for taxpayers: TAS estimates that the code now contains 3.8 million words, while the Treasury Department’s “explanatory” regulations measure about one foot tall. TAS points out that “the CCH Standard Federal Tax Reporter, a leading publication for tax professionals that summarizes administrative guidance and judicial decisions issued under each section of the Code, now comprises 25 volumes and takes up nine feet of shelf space.” Little wonder that IRS’ 100,000 employees received 167 million phone calls in FY 2008!

Can anything be done about this #1 problem of tax code complexity? Ms. Olson comes down squarely behind the idea of comprehensive tax reform, recommending that “Congress substantially reform and simplify the Internal Revenue Code.” Specific tax reform recommendations can be found on page 347 of another section of the complete report.

The 112th Congress sworn in yesterday on Capitol Hill has a huge agenda of legislative priorities, including job creation, economic growth, education and reconsideration of the 2010 healthcare reform law. One can only hope, in the spirit of Happy New Year greetings, that they would consider also the enormous compliance burden Washington has imposed on individual and business taxpayers and take steps promptly to simplify the tax code.