Complexity Remains #1 Problem, TEI Tells IRS Taxpayer Advocate.

Also Comments on IRS Funding, Fast Track Mediation Procedure

Complexity of the tax law remains the number one problem facing all taxpayers, Tax Executives Institute recently told National Taxpayer Advocate Val Oveson. The Institute's comments will be used by Mr. Oveson to prepare his annual report to Congress on the most serious problems encountered by taxpayers in dealing with the Internal Revenue Service. The report is required under section 101(a) of the Taxpayer Bill of Rights.

In a letter dated September 14 from TEI President Charles W. Shewbridge to Mr. Oveson, the Institute remarked that "[s]ome may fear that, like death and taxes, complexity will always be with us. At least in the case of large multinational corporations, that may well be true." TEI urged, however, that the complicated nature of today's economy should not be used as an excuse for not making the law simpler. "Everyone -- Congress, the Department of Treasury, the IRS, tax professionals, and taxpayers -- bears responsibility for the current state of the law," TEI said. The Institute cited the alternative minimum tax and the need for guidance on capitalization issues as examples of areas where significant improvements could be made.

The Institute also cited the complexity of the tax law's interest provisions as an area that hinders the efficient administration of the tax laws. A fundamental cause of the problem, TEI said, lies with the interest-rate differential, which produces anomalous (and unfair) results and more complexity where taxpayers both owe money to and are owed money by the government (but the debts bear interest at different rates). "Returning to one rate of interest for all taxpayers in respect of both under- and overpayments would greatly reduce or eliminate the need for netting and effect a significant simplification of current law," TEI stated. The Institute suggested that providing taxpayers with copies of interest calculations would be one way to make the administration of the interest provisions easier.

In the absence of a change in the law, the IRS should institute the most comprehensive netting system possible, the Institute urged, expressing regret that the IRS's most recent guidance on the issue, Rev. Proc. 99-19, signals a reluctance to do that. (The Institute's detailed comments on Rev. Proc. 99-19 were reprinted in the July-August 1999 issue of The Tax Executive.)

The Code's penalty provisions and their administration were also cited as...