WASHINGTON Jan 9 U.S. tax breaks need to be
pared back to spare taxpayers costs and complexity, according to
an Internal Revenue Service watchdog report released on
Wednesday even as political chances for a tax code overhaul may
Congress should consider rebuilding the tax code from
scratch and permit tax breaks only if the costs and complexities
are justified, the Taxpayer Advocate Service, an oversight arm
of the IRS, wrote in its annual report to Congress.
A tax-code revamp, last accomplished in 1986, faces a tough
road ahead in 2013 as Democrats and Republicans in Congress and
the White House argue over what tax reform means.
The convoluted tax code means many taxpayers accidentally
pay too much in taxes, or too little, which can trigger an IRS
audit, the report said.
Ninety percent of taxpayers pay for professional help to
file their taxes or buy commercial software to do returns on
their own. Unscrupulous taxpayers can find loopholes in the tax
code to dodge tax payments.
"Tax law complexity leads to perverse results," said Nina
Olson, who heads the Taxpayer Advocate Service.
The report noted that only 12 percent of businesses and sole
proprietors said they believe taxpayers pay their fair share of
taxes, a finding Olson said showed an "extraordinary lack of
Lawmakers should stress the savings that could be achieved
from curbing popular tax breaks for health insurance, mortgages
and municipal bonds, among others, O l son said. Curbing those tax
breaks would allow for lower overall tax rates.
Separately, the Government Accountability Office, an
investigative arm of Congress, on Tuesday offered lawmakers
guidance on evaluating tax breaks such as deductions, credits
and exclusions for businesses and individuals.
The most expensive tax breaks are the tax exclusion for
employer-sponsored health insurance, for employer pensions and
the home mortgage deduction, according to government estimates.
Tax breaks cost the government $1 trillion in foregone
revenue in fiscal year 2011, the report said.
The complexity of the tax code is a boon to tax preparation
businesses such as H&R Block Inc. and Intuit Inc.
, which charge customers about $20 for basic online tax
preparation. Premium preparation for businesses can top $100.
There is a growing trend toward online tax preparation, said
Gil Luria, an analyst with Wedbush Securities.
More taxpayers paid for expert help than filed from their
home computers last year, according to IRS data.
But the number of taxpayers filing electronically from home
increased 9.6 percent ahead of the April 15, 2012, tax filing
deadline. The number of taxpayers who paid a practitioner to do
their returns increased 4.1 percent, IRS said.