New report: Doing taxes takes up 7.6 billion work hours a year
— -- Federal tax-filing requirements have become so complex that they eat up 7.6 billion work hours a year, making the overall compliance effort equivalent to one of the nation's largest industries, a new federal report found.
Annual preparation of Form 1040, filed by most individual taxpayers, alone consumes 3.6 billion hours, or an average of 26 hours and 40 minutes, Nina Olson, the IRS' national taxpayer advocate, estimated Wednesday in her annual report to Congress.
Calling for major tax code simplification — and IRS compassion for economic victims of the recession — Olson said tax complexity represents "the most serious problem facing taxpayers."
"As the new (Obama) administration and Congress work to address the current economic downturn, we are encouraging them to enact tax reform that reduces the tax burden, not just tax amounts," Olson said.
Her staff report quantified some of the complexity burden:
•The tax code contains at least 11 incentives to save for education, but eligibility and definitions of common terms vary from one provision to another.
•About 77% of income subject to the Alternative Minimum Tax, originally enacted to prevent the wealthy from using loopholes to avoid any taxes, now is attributable to family size or living in a high-tax state.
•Congress has enacted several provisions that spare taxpayers from having canceled debts being treated as taxable income. But to qualify, taxpayers must file a form that is complex and unfamiliar even to many tax preparers.
•Regulations for the Earned Income Tax Credit, a provision that benefits about 22 million low-income filers each year, are so complex that they lead to improper claims by taxpayers and improper IRS denials.
Agreeing with Olson, the Tax Foundation, a non-profit group that favors lower taxes, added that the code distorts taxpayer planning and actions.
"A corporation shouldn't have to make business decisions based on what the tax code is going to do to them, but rather on conditions in the market," said Matt Moon, a Tax Foundation spokesman.
