In its May 25, 2013 edition, The Economist has an article about the IRS scandal, which is entitled “Who Will Tame the Taxman?” The part that interested me was not the discussion of alleged targeting of conservative organizations by the exempt organizations group, but its summary of other problems the IRS lives with. I quote The Economist’s description of these problems at length:
Lawmakers write the loopholes
The main reason why Americans dislike dealing with the IRS is not, however, the bureaucrats’ fault. Congress keeps making the tax code more complex. It is now 4m words long, and has been changed over 4,000 times since 2001 (see table). Americans spend 6.1 billion hours a year complying with it—enough work to keep over 3m people employed full-time without producing anything. Nearly 90% of filers pay for help with their returns. The cost of all this is equivalent to 15% of the tax raised, the taxpayer advocate reckons. This too, is self-defeating, in that it discourages compliance.
Politicians from both parties have long talked about simplifying the code by eliminating credits and deductions and using the proceeds to lower rates dramatically. Committees in the House of Representatives and the Senate have been working diligently on just such a plan. The Republican-controlled House would like to reduce corporate and personal income-tax rates to 25%. Democrats would rather use some of the revenue raised to pay down the deficit.
Some congressmen speak of a “grand bargain”, in which Republicans concede revenue increases in exchange for cuts to government health care and pensions, but there is little sign that the leaders of either party are prodding lawmakers towards such a deal. Politicians usually balk at taking on the myriad vested interests which all ferociously defend their favorite tax breaks, says Bill Gale of the Brookings Institution, a think-tank. For that reason, he argues, “tax reform is always the bridesmaid and never the bride”.
The biggest problem the IRS has is the incredible complexity of the body of law it has to administer. When I practiced in Texas I enjoyed getting problems associated with state taxes because I found that when I had a problem I could make a call and talk with someone at the office of the Controller of Public Accounts and found that invariably they were able to nail any question I had. IRS can’t do that. What is the difference? It is that the controller of public accounts had a small body of law to administer. Their people could understand it and administer it effectively. IRS will never be able to do that. The problems are too complicated. Unfortunately, as The Economist article points out, this is unlikely to change.
This creates huge frustration, which I have observed being vented by numerous members of congressional committees investigating the IRS piling on and taking cheap shots at former Commissioner Shulman. Congress has created the problems; it refuses to do any of the simplification that is so badly needed and it refuses to be in any way accountable for the mess it has created.
Practical next steps
- Note the date on this article. It describes the rules as they stood then, and tax procedure changes.
- Start from the notice you actually received: the number in the top right corner and the date printed on it decide what is still open to you.
- Pull your account transcripts before deciding anything. They show what the IRS believes about your account, which is not always what the letters say.
- If a deadline is running or the amount is significant, have someone read the file before you respond.
Official sources for current verification
- IRS Topic No. 201 — The Collection Process
- IRS Publication 594 — The IRS Collection Process
- IRS Topic No. 202 — Tax Payment Options
- IRS — IRS Audits
- Taxpayer Advocate Service — Audits in Person
- IRS — Accuracy-Related Penalty
Important notice
This material provides general information, not legal or tax advice. Tax outcomes depend on the facts, procedural history, applicable law, and current agency guidance. Reading this page does not create an attorney-client relationship.
