The Tax Code: Complicated, Impractical, and Ultimately Costly for Taxpayers and the IRS

How bad is the US Tax Code? Really bad. Here's why.

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How bad is the tax code? Really bad. Don't take our word for it. Here is what the IRS's own Taxpayer Advocate Service has to say: "The most serious problem facing taxpayers — and the IRS — is the complexity of the Internal Revenue Code (the “tax code”)."

Since 2001, Congress has made nearly 5,000 changes to the tax code--more than one per day on average. The result of their handiwork is a four million word monstrosity that nobody fully understands.

The Taxpayer Advocate says that, among other things, the tax code's complexity:

  • makes compliance with the tax laws too difficult and time consuming--individuals and businesses spend about 6.1 billion hours a year complying with tax code filing requirements at a cost of $168 billion in lost man-hours--a staggering 15% of aggregate income tax receipts
  • requires a large majority of taxpayers to hire tax preparers or purchase tax preparation software--the median cost for preparation of an individual tax return is $258
  • makes taxes impossible to understand, leaving many taxpayers unaware of how their taxes are computed and what rate of tax they pay
  • helps wealthy and sophisticated taxpayers avoid taxes, thereby contributing to the tax gap estimated at over $385 billion
  • undermines trust in the system by creating an impression that many taxpayers do not pay what they owe--in a recent survey 73% of taxpayers said the wealthy use means to avoid taxes that are unavailable to the not as wealthy, and
  • overburdens the IRS by generating tens of millions of telephone calls to the agency each year--last year, the IRS answered just two-thirds of calls from taxpayers, and the average person who got through had to spend 17 minutes on hold.

In 2012, the Taxpayer Advocate Service conducted a national survey of over 3,300 taxpayers who operate businesses as sole proprietors. Only 16% said they believe the tax laws are fair. Only 12% said they believe taxpayers pay their fair share of taxes. The Taxpayer Advocate said: "this extraordinary lack of public trust in the method by which our government is funded is profoundly disturbing."

To many beleaguered taxpayers, that might seem like an understatement.

To learn more about the tax code and find new deductions you can take, see Nolo's Tax area.

March 2013

by: , J.D.

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