IRS KNOWS TAXES ARE TOUGH

More people than ever are using tax professionals or computer software programs to help prepare their tax returns.

Convenience is one reason for the trend, but Internal Revenue Service officials say the increasing complexity of the federal tax code is what's driving most to seek help.

"If the law gets too complicated," said IRS Commissioner Mark Everson, "people just throw up their hands."

He said about 60 percent of all tax returns are now prepared by professionals, and many of the rest are prepared by taxpayers who use software programs to help them file over the Internet.

So far this year, 45.8 million tax returns have been filed electronically, a 12 percent increase over the same period last year.

Everson said tax returns have become so complicated that many people feel they have no choice but to turn to a professional or to a computer program to interpret the rules and do the calculations.

He said the complexity of the system, as well as a drop in IRS audits and enforcement activity since the mid-1990s, has hurt collection efforts and emboldened tax cheats.

"If people can't understand their responsibility, they're less likely to comply," Everson said.

The annual tax gap - the difference between taxes owed and taxes paid - has grown in recent years from about $250 billion to $300 billion. And at the same time, the public's respect for the system has declined.

An IRS poll found that the number of Americans who said it was all right to cheat on their taxes grew from 11 percent in 1999 to 17 percent in 2003.

Everson said the solution is boosting enforcement and simplifying the tax code, two things the IRS can't do without help from Congress, whose members make the rules and set the agency's budget.

In the past few years, Congress has cut the IRS budget, added new rules to the tax code and ordered the agency to shift resources from enforcement to customer service.

"That's what created this problem. It created a kinder, gentler IRS," said Ross Brown, a special agent and spokesman for the IRS in Cincinnati. "It's hard to be kinder and gentler in criminal enforcement."

Brown said criminal enforcement in the Cincinnati area has remained steady despite a decline nationally, which included a drop in property seizures from 10,700 in 1995 to just 400 in 2003.

Everson said help for enforcement is on the way. The number of individual audits already is on the rise - the odds of a person being audited now are about one in 150 - and the expected hiring of 5,000 new agents should boost those numbers further.

"Our feeling is that when we invest a dollar (in enforcement), we get five or 10 times that in return," Everson said.

The complexity of the tax code may be a tougher problem to solve. New rules keep making tax returns more complicated, and efforts to simplify have gone nowhere.

IRS officials say the next best thing to improving the system is doing what they can to help people navigate it.

Their efforts include a free-filing online program at www.irs.gov and encouraging taxpayers to take advantage of software programs.

Everson said the software has been a great help because it is more user-friendly than paper returns and because the computer does all the calculations.

The error rate for electronic filing is 1 percent, compared with about 20 percent with paper filings.

"People are using this software because many are unable to do it themselves," Everson said. "The days of people feeling comfortable doing their taxes themselves ... are receding."

From 1999:
Comforting thoughts for this most taxing of days

April 15. There’s something magic about it, especially now that the Internal Revenue Service has adopted a really nifty mission statement. Just in case you missed it, the IRS’s mission is: “Provide America’s taxpayers top quality service by helping them understand their tax responsibilities and by applying the tax law with integrity and fairness to all.”

Doesn’t that make you feel all warm and comfy? It does me. With such a caring, compassionate and understanding mission statement, who cares that, according to the IRS, it typically takes 11 hours and 34 minutes just to complete and file the basic 1040 form? And that excludes any of those fun-filled schedules we’ve come to know and love so well.

Applying the tax law with integrity and fairness is about all we can hope for. Certainly we shouldn’t expect accuracy. Congressman Bill Archer (R- Texas) is chairman of the House Ways and Means Committee and points out that in 1913 the federal tax law was 16 pages long. It’s gotten a tad bigger over the years. Now the law and associated regulations number 17,000 pages. The IRS sends out eight billion pages of forms and instructions each year.

According to Archer, in 1993 the IRS gave out 8.5 million wrong answers to taxpayers seeking assistance. That’s a lot of errors, even by those infamous bureaucratic standards for allowable inefficiency.

The private sector doesn’t do measurably better in interpreting the maze of tax rules. Money magazine asked 46 tax experts to estimate a hypothetical family’s tax bill. The result was 46 different answers.

You may be thinking, OK, so the tax laws are goofy and tough to follow. The main thing, though, is that everyone is paying his or her fair share. Wanna bet?

The nonpartisan Congressional Joint Committee on Taxation estimates that almost 48 million people won’t have to pay any federal taxes at all this year. Someone – and I think you know whom - has to compensate for that. So those who earn between $40,000 to $50,000 will pay nearly four times as much as folks who earned from $20,000 to $30,000. In fact, individuals earning over $40,000 a year pay about 96 percent of all income taxes. Not that those fat cats don’t deserve to pay until it hurts.

The IRS’s reputation for squeezing out the last penny from taxpayers is well deserved. You may recall one hapless wretch who underpaid his taxes by ten cents a few years ago. He was fined over $46,000 for that violation.

Economist Daniel Mitchell of the Heritage Foundation points out that one woman was forced to pay $3,500 twice even though the IRS finally admitted the debt was owed and paid by her ex-husband. Then there was the $26 the IRS seized from a six-year-old girl’s bank account because her parents owed taxes. In 1996 the IRS assessed 33,984,689 civil penalties.

Little wonder that a 1997 poll disclosed that the majority of people would prefer having a root canal to getting audited by the IRS. In 1990 a People magazine poll found the most frightening words most Americans could imagine are, “This is the IRS calling.” (Admittedly, the results may be different now, particularly if respondents contemplate the possibility of a young daughter announcing, “Mom and Dad, I got that White House internship”).

Our tax structure is a mess. How can citizens be penalized for violating thousands of regulations that almost no one – including the agency charged with enforcing them – can understand or explain? Just about anything, including a flat tax or a consumption tax, would be better.

At a time of budget surpluses, few are the voices in Washington calling for tax relief. The president said in January, “We could give it (the surplus) all back to you and hope you spend it right. But . . . if you don’t spend it right, here’s what’s going to happen . . .” He then presented a disaster scenario. Obviously, we can’t be trusted to do the “right” thing.

We’re now spending more on taxes than on food, shelter and clothing combined. It’s still another month before we reach Tax Freedom day, the point at which the average American begins working for himself instead of government.

But I won’t complain much. After all, the economy’s good. Washington is better at spending our money than we are; Bill Clinton said so and we know he wouldn’t lie. The IRS has a mission statement we can honor and cherish. Who could ask for anything more?

Michael M. Bates: My Side of the Swamp

1. (Tax Commissioner Mark Everson said) "Our feeling is that when we invest a dollar (in enforcement), we get five or 10 times that in return," Everson said.

2. (Tax Commission Mark)Everson said tax returns have become so complicated that many people feel they have no choice but to turn to a professional or to a computer program to interpret the rules and do the calculations.

He said the complexity of the system, as well as a drop in IRS audits and enforcement activity since the mid-1990s, has hurt collection efforts and emboldened tax cheats.

The man who said both of the above should be fired. On the one hand he ADMITS the complexity/impossibility of the tax code, and THEN he SUPPORTS attacking those who get it wrong. The article subtly suggests that the IRS will TAKE YOUR HOUSE! (a drop in property seizures from 10,700 in 1995 to just 400 in 2003. )

I would fire him NOW! And the Brown guy in Cincinnati. And EVERY politician who doesn't IMMEDIATELY get on board with either a National Retail Sales Tax (which I far prefer) OR a "FLAT TAX" that can be filled out on a single postcard and properly completed by someone with an IQ of 85.

His words are like saying, "Yeah I know the man is in a quadriplegic in a wheelchair, but we're gonna prosecute him for taking up too much space on the sidewalk."

We will see a sales tax. The scare crowd who proclaims gloom and doom for the SS and Medicare accounts know that when the IOUs become due (when collection is lower than payouts) the government will have to levy a new tax or raise existing taxes. The trouble with that is that the base of payroll taxes is shrinking as boomers begin retirement and as the average wage is depressed by foreign competition. So how to tax the boomers to be able to pay their SS and Medicare? Tax them by way of a sales tax. This of course will be an additional tax directed to pay for social programs like SS and the new entitlement, national health care, as States can't afford to pay for free health care for criminal aliens anymore. So we pay, in the form of a sales tax. For those who believe the NRST will abolish the 16th amendment, think again. Even if there is a con con to propose the changes it will take several years for the debate and votes to occur. In the meantime the sales tax will on the road to confiscating more of your property and taking away more of your freedom and liberty. We will finally fit the model the socialists have wanted for years. The government will own your labor and your freedoms.

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