Taxpayer relief or taxpayer headache? Simplicity sacrificed once again.

• Author: Mares, Michael E.
• Position: Taxpayer Relief Act of 1997

Taxpayer Relief or Taxpayer Headache? Simplicity Sacrificed Once Again

America has a new tax law. That's good news for most taxpayers who will qualify for the child tax credit and who will be able to turbocharge their savings plans for retirement and their children's education by opting to use the new tax-slashing incentives. The bad news is that complexity permeates nearly every provision of the Taxpayer Relief Act of 1997.

The new complexity will hit us all. As tax professionals, we think such complexity is wrong.

For taxpayers, it means deciphering new and confusing rules, increasing the likelihood of making more errors in filing returns. There will be more frustration, too, which in turn leads to cynicism and disdain for compliance. For those taxpayers using paid preparers (and there will be more need now), it means higher fees, since there are more issues to consider, more time needed to sift through all the new rules, and greater cost for return preparation.

For tax professionals, it means significant educational costs to master the new law's intricacies, not to mention the cost of updated software and publications to reflect these changes.

For government officials, it means drafting regulations and technical corrections, revising tax forms and publications, and training revenue agents and officers in what the new law says.

Taxpayers will soon discover that complexity is the hurdle to jump in order to claim any of the new tax law's goodies. Take, for example, the muchballyhooed child tax credit, which comes with lots of rules and exceptions. Whether a taxpayer can use the full child credit depends on the taxpayer's alternative minimum tax (AMT) liability (because the credit cannot be used to reduce the AMT). So, in order to determine whether the credit is of any benefit, taxpayers must calculate their AMT liability, and compare their regular tax liability (reduced by the child credit) to the minimum tax liability. That's not even a simple process to describe, let alone complete. And, if that's not bad enough, calculating the AMT is also more complicated now. Because of the capital gains tax changes in the law, we understand that at least 22 lines will have to be added to the AMT form.

Figuring out individual retirement accounts (IRAs) won't be easy either. First, taxpayers need to keep in mind that IRAs now have two different income phaseouts, depending on whether the old deductible IRA or one Of the new Roth or educational IRAs is...