by Annette Nellen
San José State University
Chair, Individual Income Taxation Technical Resource Panel
Since the 1980s the AICPA has been an advocate for tax simplification. The AICPA is not alone in this effort. In a recent speech to the Harvard Kennedy School, IRS Commissioner Douglas H. Shulman spoke about the need for simplification and the harm to the tax system caused by complexity. Much of what the Commissioner offered as solutions to the complexity problem echo the AICPA's Tax Policy Concept Statement No. 2 – Guiding Principles for Tax Simplification. In fact, these two views line up quite nicely. Take a look:
|Commissioner Shulman's Speech||AICPA Guiding Principles of Tax Simplification|
|"First. Seek common or standardized definitions."||"Use consistent concepts and definitions."|
|"Second. Do your best to eliminate multiple approaches and hew to just one."||"Seek simplest approaches. Once tax lawmakers identify desired tax policy or revenue objectives, the simplest and most transparent approaches to implementation should be sought."|
|"Third. Try to resist the temptation to enact short-term provisions that may expire but are then extended."||"Avoid limited applicability. Tax rules that apply to a limited set of taxpayers or for only a short period of time should be avoided."|
|"Fourth. It's desirable to set effective dates far enough ahead to allow implementation to go smoothly and to create a real incentive."||"Consider administrative burdens. The ability of tax agencies to administer, provide guidance on, and enforce the law must be considered in the development of legislation and administrative guidance."|
|"Fifth, and last, is try to see the big picture. ... Looking at each credit, deduction, income cap, or restrictive definition one by one leads to what we have now, where complexity grows incrementally with every legislative session."||"Reduce frequency of tax law change. ... Tax laws should be changed only to address changes in revenue needs, to implement significant changes in tax policy, or to alleviate existing complexities and inconsistencies."|
Advocating for tax simplification in the face of growing complexity is a challenge. The IRS National Taxpayer Advocate observes that there have been over 4,000 changes to the Internal Revenue Code in the last decade, including 579 changes in 2010 (2010 report to Congress, page 4). The Joint Committee on Taxation reports that since the Tax Reform Act of 1986, 34 public laws added 157 new special deductions, credits or exclusions to the income tax system. (JCT 2011, pages 61 – 70).
The IRS provided some simplification in 2011. For example, Notice 2011-72 eliminates most recordkeeping on employer-provided cell phones. Revenue Procedure 2011-17 provides a safe harbor approach for vendors that issue gift cards for returned merchandise.
The AICPA continued its simplification advocacy in 2011 in various letters submitted to Congress and the IRS as well as testimony delivered to the House Ways and Means Committee. On November 15, 2011, Tax Executive Committee Chair Patricia Thompson testified before the Ways and Means Committee at their hearing on the Small Business Health Insurance Tax Credit, offering suggestions for how to simplify the credit to better enable it to meet its purpose. On March 3, 2011, Ms. Thompson also testified before the same committee on tax reform and small business, noting the importance of simplification with specific recommendations on depreciation and retirement plan reforms. On April 14, 2011, this note's author testified on behalf of the AICPA before the Ways and Means Committee as well, at a hearing on the tax system burdens on individuals and families. Specific simplifications were offered in line with the AICPA and Commissioner's approach described above, such as reducing the number of education incentives and repealing the AMT.
In 2011, the AICPA also included simplification proposals in suggestions made to Treasury and IRS on their priority guidance plan, and successfully encouraged repeal of tax patents and expanded 1099 reporting.
Advocating for simplification is most definitely an uphill battle given the constant growth in the size and complexity of the tax law. But certainly, there is no need to give up because simplification is possible and there is a need for strong voices calling for it on a steadfast basis. Commissioner Shulman is to be applauded for his stance and actions on tax simplification. Just as his five-part simplification approach matches the AICPA approach, so does his comment about perseverance in the simplification effort. He concluded his recent speech with this pledge:
"from my vantage point of making policy more workable in reality – in my case for the Agency tasked with making the tax system work and for the nation's taxpayers – it is important that we not give up on the goals of making the tax code less complex and more workable just because it's hard."
Yes, let's not give up on simplification in 2012!