Our Convoluted Tax System

Our Convoluted Tax System

Our system is a travesty on the American taxpayers. It is not fair, it is inequitable, it defies logic in many cases, and it is so complicated that most people employ a professional tax preparer to get their returns completed. Here are a few examples of how complicated the tax law is:

• The Kiddie Tax which is widely used needs five pages in the IRS instruction booklet to describe how to calculate and determine who is subject to it
• The IRS instruction booklet for just the first two pages of Form 1040 is 104 pages and this does not include the extensively used Schedules A, B, and D
• The instruction booklet for the “short form” 1040A is 86 pages and for the shorter 1040EZ is 43 pages and the tax Guide for Individuals is 288 pages. Totally asinine!
• Many Schedule K-1s have explanations in attachments that state that the amounts on the first page might not be correct and need a tax advisor to explain or interpret it
• It has become commonplace for brokerage firms to follow up the tax statements they sent out with amended or corrected statements
• It has become almost impossible to get to speak to an IRS agent without being on hold one hour
• Over 3 million identity theft tax returns have been filed causing doubt about the integrity and security of our tax system
• There are conflicting definitions of a related party
• There are over 20 tax penalties
• There are multiple long term capital gains rates and tax treatment. There are different rules for securities, original interest discount, collectibles, commodities and regulated investment contracts, options, investments in small businesses, commercial and residential real estate and vacation homes, and sales of business equipment to name a few
• There are three different dates a self-employed individual can establish a retirement plan: SIMPLE plan: Oct 1. 401k, Roth 401k or Keogh Plan: Dec 31. SEP: Due date of the tax return being filed for prior year. Furthermore each of these plans have different limits and over age-50 make up contribution amounts
• There are over 10 different taxes that individuals are subject to on their Form 1040
• The IRS instructions say that it should take 16 hours to assemble the information, plan and complete the average Form 1040 without any schedules being attached. Does this make sense? Is this fair? Is this right?
• Almost every state has tax forms that are not consistent with the federal forms

The above shows items that contribute to the complexity of the tax system. On a positive note, there is a very high percentage of compliance; the system seems to function well; and the IRS web site has instructions for every form that is easy to access and actually understand. What we have is certainly not perfect, but it works but we just would like it easier to use.