1. Alternative Minimum Tax (AMT)
AMT is one of the tax law’s most complex components. AMT adjustments and preferences require taxpayers to make a second, separate computation of their income, expenses, allowable deductions and credits. We recommend repeal of the AMT.
2. Education Incentives
The Internal Revenue Code (“Code”) contains at least 14 complex incentives to encourage saving for and spending on education. Requirements, eligibility rules, definitions, and income phase-outs vary from incentive to incentive. Taxpayers need the harmonization and simplification of these incentives.
3. Earned Income Tax Credit (EITC)
The EITC is complex and often misunderstood due to the numerous definitions and special rules, as well as the computation itself. The EITC should be simplified.
The Code includes many exclusions, exemptions, deductions, and credits which are phased-out for taxpayers whose incomes exceed certain levels. Taxpayers need greater consistency across phase-outs in how income thresholds are determined, the income range over which the phase-out applies, and the method of applying the phase-outs.
5. Different Definitions of the Same Term
There are several terms which have multiple and inconsistent definitions in the Code, e.g., “Modified Adjusted Gross Income,” and this leads to confusion. Definitions should be consistent where the same term is used.
6. Kiddie Tax
The Code taxes a portion of the unearned income of children under the age of 18 and full-time students under the age of 24 at the parents’ marginal tax rate, rather than at the child's lower rate. The complexity of these provisions creates a number of challenges and the rules should be simplified.
7. Retirement Plan Options
The Code provides for more than a dozen tax-favored employer-sponsored retirement planning vehicles, each subject to different rules pertaining to plan documents, eligibility, contribution limits, tax treatment of contributions and distributions, the availability of loans, portability, nondiscrimination, reporting and disclosure. These provisions should be revised so they are simpler, more readily understood, easier to comply with and administer, and more effective in enabling taxpayers to accumulate significant retirement assets.
8. Inflation Adjustments
Inflation eventually erodes the equity of certain tax provisions. Although many items are now adjusted on an annual basis for inflation, some are not, e.g., the individual retirement account contribution limit, the capital loss limitation, and the definition of a small business. In these cases, the Code should allow for annual inflation adjustments.
9. Due Dates
Taxpayers and CPAs have long struggled with problems created with Schedules K-1 arrive late, which make it difficult, if not impossible, to file a timely, accurate tax return. The AICPA is advocating for a logical set of due dates for personal, business, and trust tax returns.
10. Unused Provisions (a/k/a “Deadwood”)
There are numerous tax provisions which are obsolete or unimportant and rarely used. Repeal of these provisions would simplify the Code.