The Complexity of Tax Code - Tax Compliance - Largest Industry?
THE Internal Revenue Code (USA) requires the National Taxpayer Advocate to submit a report each year to the Congress and in it, among other things, to identify at least 20 of the most serious problems encountered by taxpayers and to make administrative and legislative recommendations to mitigate those problems.
The National Taxpayer Advocate submitted its report for 2012 yesterday.
The most serious problem facing taxpayers and the IRS — is the complexity of the Internal Revenue Code.
An analysis of IRS data shows that taxpayers and businesses spend 6.1 billion hours a year complying with tax-filing requirements. To place this number in context, it would require more than three million full-time employees to work 6.1 billion hours, making "tax compliance" one of the largest industries in the United States.
Tax law complexity imposes monetary costs on taxpayers as well. About 59 percent of individual taxpayers pay practitioners to prepare their returns, and another 30 percent use tax software to assist them, with leading software packages costing $50 or more.
Perhaps most troubling, tax law complexity leads to perverse results. On the one hand, taxpayers who honestly seek to comply with the law often make inadvertent errors, causing them to either overpay their tax or become subject to IRS enforcement action for mistaken underpayments. On the other hand, sophisticated taxpayers often find loopholes that enable them to reduce or eliminate their tax liabilities.
In a survey, 16 percent said they believe the tax laws are fair. Only 12 percent said they believe taxpayers pay their fair share of taxes.
The National Taxpayer Advocate finds this extraordinary lack of public trust in the method by which the government is funded profoundly disturbing.