Taxpayer Advocate Urges Mercy, Simplification

National Taxpayer Advocate Nina E. Olson has released her annual report to Congress, urging simplification of the tax code and recommending measures to reduce the burden on taxpayers who are struggling to pay their tax bills.

The report takes note of the serious financial difficulties facing many Americans in light of the ongoing economic downturn. “It is imperative for the IRS to consider the circumstances of taxpayers facing economic hardship before initiating enforcement actions,” Olson wrote.

The report also designates the complexity of the tax code as the most serious problem facing taxpayers. According to data compiled by Olson’s office, U.S. taxpayers and businesses spend about 7.6 billion hours a year complying with tax-filing requirements. It estimates that U.S. taxpayers spend $193 billion a year complying with income tax requirements, an amount that equals 14 percent of the total amount of income taxes collected.

The NYSSCPA believes it may have found a solution in its Simple Exact Transparent (SET) Tax, a transparent way to see the impact of social and tax policy decisions made by Congress. SET allows taxpayers to see what taxes they owe, why they owe tax, where their money is going and how deductions directly benefit them. With the SET Tax, taxpayers’ burden would be reduced. The calculation of taxes would be reduced to a one-page tax form, with less chance of error.

Want to know more about SET? Read Immediate Past President David A. Lifson's op-ed piece in the New York Sun. You can find the FAQ here and read more here, here, and here.

One example of needless complexity in the revenue code is the Alternative Minimum Tax (AMT), which effectively requires taxpayers to compute their taxes twice — once under the regular rules and again under the AMT regime — and then to pay the higher of the two amounts. Although the AMT was originally conceived to prevent wealthy taxpayers from escaping tax liability through the use of tax-avoidance transactions, it wasn't indexed for inflation and now has the potential to trap millions of middle-class taxpayers. With the economy in recession, no one can afford not to find a solution to the AMT.

In related news, the IRS announced a number of new steps it is taking to help financially distressed taxpayers maximize their refunds and speed payments while providing additional help to people struggling to meet their tax obligations. Among them: postponement of collection actions, flexibility for missed payments and possible compromise on home values. They also strongly recommend e-filing.