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One Way Mirrors - My 2010 Rant

By Tim Berry, JD - Email Editor

Date : January 28, 2010

I read a couple of press releases a couple of days ago that really set me off. Quite honestly, my “upsetness” (yeah, I know, not a good choice of words, but I was told I cannot use stronger language) isn’t probably well founded, but I was bothered just the same. There really is no point to this article other than to raise your awareness of an upcoming change in tax reporting requirements.

Let me start off with an example.

Not only that, but they then require that you keep a log of all of your violations, those that you know you violated as well as any you think you might have violated. Also on that log you’re required to tell the government the highest amount of the fine you would be willing to pay for your violations, both known and potential. Finally, you’re required to send in that information, to the government.

How many of you would be pleased the government was doing its best to keep the roads safe?

Something very similar just happened in the tax world.

On January 26, the IRS Commissioner addressed the NY Bar Association on managing complexity. You need to go read this right now. Seriously.

Did you read it? Who else had to pinch themselves? I would ask who had to hit themselves with a 2x4, but it appears the government wants to do that for us.

Let’s review the remarks of Mr. Shulman, shall we?

Notice how he starts off extolling upon the complexities of life, and then admits that “Tax law complexity affects everyone today. . .“ Great. I’m glad the head of the IRS has come to this realization.

The problem is that while he admits tax laws are complicated, he seems to say that, since everything else in the world is complicated, we need to get over the complications of the tax code and just deal with it, as the tax code is going to remain complex. This is coming from a W2 employee who has admitted the tax code is so complicated he uses a preparer.

Let me digress here a bit as I am absolutely flummoxed that the individual in charge of enforcing the tax code doesn’t seem to care about the complexity of the code.

To me, this is similar to an oncologist not caring about a cancerous growth; instead they just want to shoot you full of morphine.

How is the common person, the one who brings home less than $85,000, supposed to be compliant if the IRS Commissioner admits the code is a mess, but doesn’t offer a solution? What should the common person do, hire a tax preparer?

Great. You guys remember a few years ago Money magazine used to submit tax cases to different tax preparers, and no two preparers came up with the same answer? You think that had anything to do with complexity? If your tax preparer royally screws up who is held liable? How about software, is the average Joe supposed to use software? Well maybe we should ask Mr. Geitner about that, he blames Turbotax for blowing his taxes.

In order to make the system more “transparent” Mr. Shulman is proposing that . . .

Are you sitting down?

He wants to require taxpayers to file a schedule of their “uncertain tax positions,” along with the maximum, yes, the maximum amount of US Income tax exposure to the taxpayer’s position if the IRS doesn’t agree with the taxpayer. By the way, they don’t want no stinkin’ explanation, rather just a few sentences to alert them to the situation.

How in the hell is the taxpayer supposed to know their uncertain tax positions if the code is so damn complicated they can’t understand it in the first place? By the way, what is an uncertain tax position? Is it any different from a listed transaction? A reportable transaction? Or, a transaction of interest? The above are all different categories of what the IRS considers questionable. Good thing complexity isn’t an issue.

Think this will cause a burden on the taxpayer? Mr. Shulman doesn’t. In his speech he says, “We could have asked for more. . . a lot more. . . but chose not to.” Well gee, thanks for the restraint.

Now, before you become completely unhinged, let me point out this proposal is currently only geared for taxpayers with assets over 10 million dollars. Having said that, how long do you think it is going to be before the IRS says their attack on the 10 million dollar taxpayers was so successful they decided to expand it down to everyone? Way back in 1913, the top tax bracket of 7 percent only applied to those making $500,000, which if you factor in inflation is equal to a little less than 9 million today.

So what is the net effect of this?

Let’s read between the lines. There are going to be hefty penalties and fines for not providing this information to the IRS, not only for the taxpayers, but also for the tax preparers who may as well be employees of the IRS at that point. (You might want to revisit my article from last year about your tax preparer really working for the IRS.) Besides, what could be a greater revenue raiser than to penalize taxpayers who don’t report areas of the law they don’t know they are violating. Kafka would be proud.

Normally I would wrap things up by pointing out that you need to make sure your house is in order and your assets are protected, but I am genuinely afraid that if I said that in the context of an article about the IRS I would be subject to massive sanctions.

P.S. Here is the link to the formal IRS announcement released minutes after Mr. Shulman’s remarks.

By Tim Berry, JD
TrustMakers.com

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