Congress inaction risks 2013 tax "disaster": IRS chief

WASHINGTON Thu Apr 5, 2012 4:31pm EDT

U.S. Internal Revenue Service (IRS) Commissioner Douglas Shulman speaks during an interview with Reuters at his office in Washington October 8, 2009. REUTERS/Hyungwon Kang

U.S. Internal Revenue Service (IRS) Commissioner Douglas Shulman speaks during an interview with Reuters at his office in Washington October 8, 2009.

Credit: Reuters/Hyungwon Kang

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WASHINGTON (Reuters) - The commissioner of the U.S. tax-collecting Internal Revenue Service warned on Thursday of "a real disaster" for taxpayers next year should Congress miss a December 31 deadline to decide on billions in major tax provisions.

Congress is expected to wait until after Election Day, November 6, to take up whether to extend the individual income tax cuts passed under former president George W. Bush that expire at the end of 2012.

Most Democrats and President Barack Obama want to extend all but the top two tax brackets, allowing taxes to increase for high-income earners. Republicans want to extend the lower rates for all income groups.

A 2010 "lame duck" session deadlock to extend the Bush tax cuts delayed the start of the tax filing season in early 2011.

Allowing the pending tax decisions to lapse into 2013 will cause confusion for taxpayers, said Douglas Shulman, IRS commissioner, speaking at the National Press Club in Washington.

"We're going to have real risk in the system" if Congress delays, Shulman said.

"You could have a real disaster in the filing season where there's total confusion," especially for the alternative minimum tax "patch," he said.

The alternative minimum tax is a parallel tax system that applies to higher-income taxpayers. A legislative fix to index it for inflation must be approved before year's end to prevent the tax from hitting taxpayers in lower income brackets.

In the absence of congressional action by January 1, the IRS might be forced to delay the tax-filing season, which begins promptly with the new year, Shulman said.

As it is, Congress faces a huge workload for the two-month lame-duck period after the elections when about $650 billion of tax and spending provisions expire.

Shulman, appointed by President George W. Bush and now in the last year of a five-year term, defended IRS's regulation of 501(c)4 groups, including Tea Party organizations, which have received IRS letters asking questions about their political work.

For any non-profit groups that raise red flags, the IRS will "go out and do an audit and gather more facts," Shulman said in response to a question about IRS investigations into the non-profit groups.

Shulman also touted stronger IRS international enforcement efforts for businesses and individuals.

The agency has hired private-sector experts to better catch businesses that aggressively shift assets and profits offshore.

The new enforcers will help the IRS keep pace with corporations' evolving tax strategies, Shulman said.

Tax professionals have doubted whether the IRS has the muscle to enforce these "transfer pricing" disputes.

Transfer pricing is a booming field of global tax law. It involves multinational corporations moving goods, services and assets from one subsidiary to another in different countries and how they account for these "transfers."

(Reporting by Patrick Temple-West; Editing by Howard Goller and Philip Barbara)

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Comments (2)
Americans deserve full scale tax reform along the lines of the Bowles-Simpson plan which would increase tax fairness and corporate competitiveness by lowering the marginal rate and removing tax expenditures. http://bit.ly/noTDPF

Apr 05, 2012 4:25pm EDT  --  Report as abuse
morbas wrote:
USA tax structure is the fault and an obstacle to worldly potential. Transaction tax code imposes disproportionate burden at the most fundamental rights of liberty, justice. Any encumbrance on sustenance is contrary to equality in the ’pursuit of happiness’.
1) Margin based graduated income tax.
2) Margin set at twice the sustenance level.
3) No other taxes, sales or otherwise.
4) Import fees set at 99% of originators import fees.
You want fair. This is fair to Americans!

Apr 05, 2012 5:17pm EDT  --  Report as abuse
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