Daily Tax Update - January 9, 2013: National Taxpayer Advocate Designates Tax Reform Top Priority

NATIONAL TAXPAYER ADVOCATE DESIGNATES TAX REFORM TOP PRIORITY:  Today, National Taxpayer Advocate Nina E. Olson released her 2012 annual report to Congress, identifying the need for tax reform as the overriding priority in tax administration.  The report also discusses the need for adequate IRS funding and issues related to tax-related identify theft.

  • "The National Taxpayer Advocate’s annual report designates the complexity of the tax code as the #1 most serious problem facing taxpayers and recommends that Congress take significant steps to simplify it.  The existing tax code makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns," Olson wrote.  “It obscures comprehension, leaving many taxpayers unaware how their taxes are computed and what rate of tax they pay; it facilitates tax avoidance by enabling sophisticated taxpayers to reduce their tax liabilities and provides criminals with opportunities to commit tax fraud; and it undermines trust in the system by creating an impression that many taxpayers are not compliant, thereby reducing the incentives that honest taxpayers feel to comply.”  The report adds that “the tax code imposes a significant, even unconscionable, burden on taxpayers.” 
  • The report states, “To reduce taxpayer burden and enhance public confidence in the integrity of the tax system, the report urges Congress to greatly simplify the tax code.  In general, this means Congress should reassess the need for existing income exclusions, exemptions, deductions and credits (generally known as ‘tax expenditures’).”  The report recommends that Congress approach tax reform in a manner similar to zero-based budgeting.  The starting assumption would be that all tax expenditures would be eliminated.  A tax break would be retained only if a compelling case can be made that the benefits of that break outweigh the complexity burden it creates.  “In performing this analysis,” Olson said in releasing the report, “we should look at each provision in the code and ask questions like:  ‘Does this government incentive make sense?’; ‘If it does, is it better administered through the tax code or as a direct spending program?’; ‘However well intentioned, is it doing what it was intended to do?’; and ‘If yes, can it be administered without imposing unreasonable burdens on taxpayers or the IRS?’.  At the same time, Congress can separately consider how much revenue it wants to raise, and it can then marry up our optimally designed tax system with our revenue needs by setting tax rates accordingly.”
  • The report recommends that Members of Congress take several steps, including:
    1. Lay the groundwork for tax reform by holding meetings with constituents to discuss the complexity of the existing tax code and the trade-offs between tax rates and tax breaks that tax reform will require.
    2. Apply a “zero-based budgeting” approach to comprehensive tax reform that starts out with the assumption that all tax benefits will be eliminated and then adds a benefit back only if Members conclude that, on balance, the public policy benefits of providing that benefit through the tax code outweigh the complexity it imposes on taxpayers.

MISCELLANEOUS GUIDANCE RELEASED:

Notice 2013-2 provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under section 412(b)(5)(B)(ii)(II) of the Internal Revenue Code as in effect for plan years beginning before 2008.  It also provides guidance on the corporate bond monthly yield curve (and the corresponding spot segment rates), and the 24-month average segment rates under section 430(h)(2).  In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under section 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, the 30-year Treasury weighted average rate under section 431(c)(6)(E)(ii)(I), and the minimum present value segment rates under section 417(e)(3)(D) as in effect for plan years beginning after 2007.  The rates in this notice reflect certain changes implemented by the Moving Ahead for Progress in the 21st Century Act, Public Law 112-141 (MAP-21).

Announcement 2013-9 addresses a typographical error in the Schedule of User Fees found in Appendix A of Revenue Procedure 2013-1, 2013-1 I.R.B. 1, wherein the reduced user fee for a letter ruling, method or period change or closing agreement request involving a personal or business tax issue from a person with gross income of less than $250,000 was incorrectly listed as $1,000, when the correct reduced fee for this type of request is $2,000.  Accordingly, the user fee associated with paragraph (4)(a) in Appendix A, Schedule of User Fees of Revenue Procedure 2013-1, 2013-1 I.R.B. 1, page 68, is $2,000.

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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