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Tales of the Red Tape #23: Internal Revenue Scam

Posted By Diane Katz On January 4, 2012 @ 10:56 am In Featured | Comments Disabled

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The straight text of the U.S. tax code exceeds 5,000 pages. Throw in the annotations necessary to actually decipher the thing and it swells beyond 72,000 [2] pages. (Instructions for filing the “EZ” form run 41 pages.) All of which will yield a whopping $2.6 trillion in federal tax receipts [3] (estimated) for 2012.

So, naturally, the Internal Revenue Service (IRS) has concocted new regulations that make the preparation of tax returns even more difficult and costly.

The new rules [4] require tax preparers who aren’t lawyers or Certified Public Accountants to obtain a “Preparer Tax Identification Number” (PTIN) every year (at an aggregate annual cost of at least $60 million), pass a “competency” exam ($116 million, all told), submit to a “suitability” check by the IRS, and accumulate at least 15 hours of continuing education credits each year (up to $200 per course).

The big heads at the IRS evidently believe that the 1 million or so unregulated (gasp!) tax preparers are responsible for the dismal state of our tax system. As opposed to, say, 72,000 pages of contorted tax rules that no one understands—including IRS agents.

All told, the agency estimates that new record-keeping costs alone will top $48.5 million a year. (Alas, the vast majority of the individuals subject to the new rules either operate or are employed by small businesses.)

The IRS contends that the costs are justified by the “special benefit” conferred upon tax preparers of being allowed by the government to receive compensation for preparing federal tax returns. (In other words, tax preparers ought to be downright grateful about paying the government for the right to ply the very trade they practiced before the IRS turned it into a “special benefit.”)

To handle all the paperwork associated with the new rules, the government has created a Return Preparer Office “dedicated solely…to best serve tax return preparers and taxpayers by providing efficiency and expertise in this area.”

(Oops. The efficient and expert employees of said office have already issued PTINs to 331 imprisoned felons—43 of whom are serving life sentences, according to a recent report [5] by the Treasury Inspector General for Tax Administration.)

May we suggest that the IRS worry first about the competency of its own? For example:

  • The agency was wrong in 17 percent of its disputes with taxpayers over supposed math errors in tax returns, and it failed in 40 percent of the cases to resolve the disputes in a timely fashion, according to the Treasury Inspector General for Tax Administration [6] (TIGTA).
  • The Inspector General, in a small sampling, found errors in 61 percent of the returns prepared by volunteers recruited by the IRS to assist low-income taxpayers, the elderly, and those with language barriers.
  • Only 19 percent of written inquiries from taxpayers received timely and accurate responses from the IRS, according to the TIGTA. Moreover, out of 350,000 calls to a toll-free phone line for hearing- and speech-impaired taxpayers, the agency responded to 339.
  • Under the so-called Cash for Clunkers program, the agency awarded $151 million in undeserved tax deductions to 4,257 individuals, according to an audit. Recipients included 439 imprisoned felons, 16 dead people, and 18 children.

So what we have, then, is a new regulatory scheme that won’t dent the real problem—our incomprehensible tax code—but will make it more costly for taxpayers to hire the help they need to comply.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2012/01/04/tales-of-the-red-tape-23-internal-revenue-scam/

URLs in this post:

[1] Image: http://author.blog.heritage.org/wp-content/uploads/irs-building.jpg

[2] 72,000: http://www.cch.com/wbot2011/WBOT_TaxLawPileUp_(28)_f.pdf

[3] $2.6 trillion in federal tax receipts: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/hist02z1.xls

[4] new rules: http://www.federalregister.gov/articles/2011/06/03/2011-13666/regulations-governing-practice-before-the-internal-revenue-service

[5] report: http://www.treasury.gov/tigta/auditreports/2012reports/201240010fr.pdf

[6] Treasury Inspector General for Tax Administration: http://www.journalofaccountancy.com/Issues/2011/Nov/MathErrors.htm

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