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Return preparers and IRS officials told lawmakers at an April 26 Senate Finance Committee hearing that tax laws need simplification in order to improve compliance.

Simplification, Better Tools Would Improve Tax Filing

  • 5/2/2012

Simplification, Better Tools Would Improve Tax Filing

Return preparers and IRS officials told lawmakers at an April 26 Senate Finance Committee hearing that tax laws need simplification in order to improve compliance. Committee Chairman Max Baucus, D-Mont., acknowledged as much, telling participants that there are 132 tax provisions that frequently expire and create uncertainty for taxpayers.

"We need to simplify the tax code," he said, adding that the panel plans to look at how to effectively use technology and improve communication between taxpayers and the IRS.

Correspondence audits

Baucus said one IRS process that is particularly hard on taxpayers is the correspondence audit, as taxpayers often cannot reach anyone at the IRS to talk to during the process. If they ever do, the IRS representative is often unfamiliar with their case and none of their submitted documents have been considered. "The problem points to larger issues taxpayers have when trying to work with the IRS," he said.

Teresa Thompson, a local taxpayer advocate for the Montana Taxpayer Advocate Service (TAS) in Helena, Montana, said the increasing use of correspondence audits by the IRS, "especially in inappropriate situations such as employee business expense audits," will continue to generate TAS cases that reflect confusion and frustration by taxpayers, and inaccurate decisions by the IRS.

"The IRS must take steps to improve its communication and assistance to taxpayers in the correspondence audit process," said Thompson. She said the Montana TAS office continues to receive correspondence audit cases that exhibit taxpayer frustration and a lack of communication by the IRS throughout the audit process.

Return filing

Senate Finance Committee ranking member Orrin G. Hatch, R-Utah, criticized the IRS’s performance when it comes to the return-filing experience, citing its stated goal of answering 61 percent of phone calls from taxpayers.

"On this issue, I would give the IRS a failing grade, and I suspect that the nearly 40 percent of taxpayers whose calls go unanswered would agree," said Hatch.

According to a recent report by the Government Accountability Office (GAO), limiting the frequency of changes to the tax code could help reduce calls to the IRS with questions about the changes.

"We have reported that the IRS annually receives millions of calls about tax law changes," said James White, GAO director for tax issues. "Tax code complexity can make it difficult for taxpayers to voluntarily comply. Frequent changes in the tax code also reduce its stability, making tax planning more difficult and increasing uncertainty about future tax liabilities."

Studying communication

White added that the IRS is currently studying ways to better communicate with taxpayers and determine which self-service tools would be the most beneficial to taxpayers. According to IRS officials, the study should be completed later this year.

Beth Tucker, IRS deputy commissioner for operations support, pointed to improvements at the IRS, despite funding cuts. She noted that the IRS e-file program continues to grow.

"This year, the individual e-file rate continues to trend upward — a very positive development — while returns filed on paper continue to fall." She pointed out that, for fiscal year 2011, it cost only 15 cents to process an e-filed return, a fraction of the $3.55 it takes to process a paper return.

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