Annual Report to Congress 2022 45
MOST SERIOUS PROBLEM #2
COMPLEXITY OF THE TAX CODE
The Complexity of the Tax Code Burdens Taxpayers and the IRS Alike
EXPLANATION OF THE PROBLEM
e Code contains 9,834 code sections – many containing detailed subsections – and a six-volume set of
corresponding regulations.
3
Many of these sections are unnecessarily complex and archaic as they were
drafted decades ago, and the tax laws impose a complex system of requirements that do not match today’s
world. Complexity is a problem because complex rules lead to confusion, errors, and distrust, which reduces
self-assessment and voluntary compliance. Some examples of how family structures are changing, and
families, businesses, and taxpayers earn a living in the 21st century include:
WHY THIS IS A SERIOUS PROBLEM FOR TAXPAYERS
U.S. tax laws are overly complex. As a result, they burden America’s taxpayers and negatively impact
voluntary tax compliance. e current system of preparing and ling tax returns is too dicult,
costly, and time-consuming. is is especially true for small businesses and taxpayers accessing
social benets through the tax system. Some of this complexity exists because the Internal Revenue
Code (hereinafter “the Code”) does not mirror modern life and has failed to evolve with the times.
Making the rules easier to understand and follow would improve tax administration and compliance.
is Most Serious Problem looks at legislative and informational improvements to simplify and
modernize the Code. Simplifying the Code means making it easy to understand, easy for the IRS
to administer, and less burdensome on everyone, whether they are preparing tax returns, trying to
comply with tax laws, or being audited. Simplifying the Code is the most important step Congress
can take to reduce taxpayer compliance burdens, increase self-assessment and voluntary compliance,
and improve the processing eciency and verication of annual income tax returns.
1
Simplication
is essential to the integrity of the U.S. tax system and to the broader civic participation of American
taxpayers.
2
Taxpayer Advocate Service46
• Family units are increasingly diverse with multigenerational households, split custody, blended
families, and nonmarried cohabitating partners.
• We conduct business in new ways. e internet has expanded opportunities for people to start new
types of businesses.
• Families and businesses are more mobile than ever. Especially during the COVID-19 pandemic,
taxpayers may have relocated frequently. Individuals may be “digital nomads” whose residency may
not be xed. Businesses may operate remotely without xed business locations.
• e concept of work has changed. e internet has allowed for more exible work arrangements.
ose earning income may not be tied to just one employer or xed location. ere are many gig
economy workers, independent contractors, and small or microbusiness owners.
While technological innovation reduces barriers to entry for starting a business, the tax burdens endure. e
Code must be modernized and adapted.
ANALYSIS
Simplicity matters so that taxpayers understand the rules and can comply with them eciently.
4
However,
“simple” does not necessarily equate to fewer words; in the context of the Code, it means the tax laws should
be clear and easy for a taxpayer to understand, rely on, and use. e goal should be to draft clear and easy
to understand laws. But just as important, Congress should draft fair, easily administrable laws with an eye
toward reducing burden on both taxpayers and the IRS.
e Code is the product of legislative changes throughout the decades. Much of the complexity stems from
the desire to use the tax laws for more than raising revenue. It is a method of implementing social and
economic policy objectives.
5
For example, Congress has entrusted the IRS to administer many social benets
through the tax system, such as the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), Additional
Child Tax Credit (ACTC), and the American Opportunity Tax Credit (AOTC). ese programs provide
critical nancial assistance to American taxpayers.
e realities of the legislative process have produced a complex set of sunsets and phase-outs. As tax
provisions are enacted through the reconciliation process, the “Byrd Rule” creates the need for expiration dates
on laws that aect the budget.
6
is means many tax provisions are what have been called by one external
stakeholder “Hokey Pokey” provisions: one year they are in the Code, and one year they are out.
7
e
uncertainty jeopardizes tax compliance and administration of the tax system, and taxpayers struggle to learn
the rules from one year to the next. It makes it dicult for individual taxpayers to plan. It makes it hard for
small businesses to plan capital expenditures.
8
It is also hard for the IRS to keep up with the changes. It must
edit forms, publish guidance, train sta, and update computer systems.
9
is is important as taxpayers look
to the IRS to provide explanations via its publications, website, customer service telephone lines, and online
chat functions.
Some argue this complexity is inevitable, given the use of tax expenditures and non-revenue-raising uses of the
Code, and may even be necessary to achieve fairness or provide social benets.
10
However, it is the position
of the National Taxpayer Advocate that there is room to simplify and modernize the current Code to make it
more accessible to America’s taxpayers and more administrable by the IRS.
Complexity creates the following issues, as shown in Figure 2.2.1.
47Annual Report to Congress 2022
FIGURE 2.2.1
Difficult to Administer
Undermines Trust in the Tax System
and Reduces Voluntary Compliance
Burdens Taxpayers
Out of Touch With Modern Life
TAX COMPLEXITY CHALLENGES
Creates onerous compliance burdens on individuals and businesses. Taxpayers devote
excessive time and resources to preparing and filing tax returns.
Forces taxpayers to bear monetary costs to comply by hiring tax return preparers or buying
tax preparation software.
Rewards taxpayers who can afford expensive tax advice and discriminates against taxpayers
who cannot.
Alienates taxpayers as they do not understand the rules.
Confuses taxpayers who do not understand how their taxes are computed and creates a
perception people are not paying their fair share.
Leads to lower levels of tax compliance, as taxpayers make inadvertent and deliberate errors.
Facilitates tax avoidance by enabling taxpayers to structure transactions to reduce liabilities
or commit fraud.
Excludes families and businesses from credits and deductions because the Code does
not reflect life in the 21st century.
Impacts economic growth.
Requires the IRS to update forms, publications, and computer systems, train employees
on changes, and respond to millions of taxpayer questions regarding rule changes.
Impedes the IRS’s ability to detect noncompliance through audits or other means.
Requires the IRS to spend valuable resources answering questions and providing guidance
regarding the Code’s complex provisions.
48 Taxpayer Advocate Service
Time and Financial Burdens
e nancial burden and time commitment for complying with our nation’s complex tax system is
astronomical. For example:
• An individual taxpayer is estimated to spend 13 hours and $240 out-of-pocket costs to prepare and
le one annual tax return.
11
• For a small business, the time and money spent on tax compliance is roughly 82 hours and $2,900.
12
• Individual taxpayers spent a total of 897 million hours in scal year (FY) 2022 on recordkeeping.
is is in addition to the 1.15 billion hours spent on tax preparation of individual returns.
13
• Business entities spent about 1.14 billion hours and $48.3 billion on tax preparation in FY 2022.
14
• Many small businesses/sole proprietorships le a Schedule C to report their business income and
expenses. For tax year (TY) 2021, about 16 percent of individual income tax returns led for that
year included a Schedule C.
15
• For many small businesses, time is their most valuable asset. As an external stakeholder stated in a
discussion with TAS, each hour spent on tax compliance is an hour less they can spend assisting a
customer.
16
Some are spending the equivalent of two full weeks a year on tax return preparation.
17
• In FY 2022, U.S. taxpayers collectively spent $89.7 billion on tax preparation and 3.2 billion hours
on recordkeeping and tax preparation.
18
If this time were monetized, this constitutes $94.6 billion
spent on tax preparation in FY 2022 alone.
19
e enormity of the dollars spent on this roughly
equals the gross domestic product of the Dominican Republic.
20
• e IRS hourly paperwork compliance burden is over six billion hours.
21
• It is estimated that tax compliance burden is 71 percent of the annual federal paperwork burden.
22
e time spent on recordkeeping and tax preparation is excessive. is is time business owners could spend
on growing their businesses. It is time individual taxpayers could earn wages or care for family members.
e estimates may be low as they only include the cost of preparing federal income tax returns, not state tax
documents. ey do not include the costs of education, government administration, and tax litigation.
23
Since the National Taxpayer Advocate last addressed complexity as one of the Most Serious Problems in the
2014 Annual Report to Congress, we can reect on some progress toward simplication.
24
e Tax Cuts and
Jobs Act (TCJA) of 2017 increased the standard deduction signicantly while eliminating certain itemized
deductions.
25
As a result, we can see a signicant shift toward claiming the standard deduction rather than
itemizing deductions (see Figure 2.2.2). Pre-TCJA, 31 percent of tax returns claimed itemized deductions,
and 69 percent used the standard deduction. Since TCJA, only 9.7 percent of returns claim itemized
deductions, and 90.3 percent of returns use the standard deduction.
26
is signies a reduced time burden
for individual taxpayers, who no longer have to collect records or compute itemized deductions. is is a
small step on the path toward simplication. Yet, the National Taxpayer Advocate notes this was a policy
decision with a negative nancial impact on many who previously beneted from Schedule A deductions like
uncapped state and local taxes and unreimbursed employee business expenses.
49Annual Report to Congress 2022
FIGURE 2.2.2
27
TY 2017 TY 2018 TY 2019 TY 2020
TY 2021 (Through
September 2022)
Count Percent Count Percent Count Percent Count Percent Count Percent
105,674,873 69.0 137,121,824 88.7 148,776,754 89.5 145,883,368 90.3 132,909,065 91.3
47,453,918 31.0 17,471,552 11.3 17,455,642 10.5 15,745,379 9.7 12,701,725 8.7
153,128,791 100.0 154,593,376 100.0 166,232,396 100.0 161,628,747 100.0 145,610,790 100.0
Costs and Risks
It is costly to keep records, comply with the Code, and prepare and le tax returns, and additional
complexities arise regarding the time necessary to retain records. e whole process is stressful. Most
taxpayers want to do the right thing; they want to comply. But it is dicult to do it on their own. Often,
they are compelled to pay for tax software or tax professionals to help them understand their tax obligations.
In TY 2020, 92.7 percent of taxpayers led returns using tax software.
28
For TY 2021, of the individual tax
returns led through October 2022, 96 percent were led via tax software.
29
is imposes a monetary cost on
those taxpayers who paid for software to prepare and le their returns. Because the law requires ling annual
tax returns, the government should bear the costs associated with ling. e high cost of return preparation
driven by the complexity of the Code creates a disparity between those who can aord tax professional
assistance and those who cannot. Low-income lers face higher compliance costs relative to their resources.
30
Complex rules make claiming refundable credits too dicult without software or professional assistance. is
costs money and drains resources from households.
31
For TY 2020, over half of the taxpayers claiming the
EITC (50.4 percent), used a paid tax return preparer.
32
For TY 2021, over 15.2 million people claiming the
EITC paid for tax return preparation essentially to claim a public benet provided by Congress.
33
e high
cost of tax return preparation may drive taxpayers to rely on noncredentialled tax return preparers who may
not adhere to the rules either intentionally or unintentionally, potentially causing problems for taxpayers
down the road. e Department of the Treasury and the National Taxpayer Advocate believe unscrupulous
and unregulated tax return preparers contribute to refundable credit noncompliance, fraud, and improper
payments.
34
An improper payment is any payment that should not have been made, was made in an incorrect
amount, or was made to an ineligible recipient.
35
For FY 2021, the IRS calculated and reported the following
dollar amount and percentage rate of improper payments for three of its high-priority programs susceptible to
improper payments:
• EITC: e IRS estimates 28 percent ($19.0 billion) of the total EITC payments of $68.3 billion
were improper.
36
• ACTC: e IRS estimates 13 percent ($5.2 billion) of the total ACTC payments of $39.4 billion
were improper.
37
• AOTC: e IRS estimates 26 percent ($1.9 billion) of the total AOTC payments of $7.1 billion
were improper.
38
Taxpayers suer the consequences, as they are ultimately responsible for any tax liabilities resulting from these
improperly prepared returns.
39
Moreover, these errors increase burdens to tax administration and negatively
impact the tax gap.
50 Taxpayer Advocate Service
e complexity of the Code undermines public trust in government and the IRS; conversely, simplifying the
Code would enhance understanding and public condence in the fairness of the tax system.
40
Taxpayers may make inadvertent mistakes due to misunderstanding the law. e IRS may assess penalties
against people who made every eort to comply with the law. is erodes trust in the system and may inhibit
self-assessment and voluntary compliance, the bedrock upon which our tax system is based. It further erodes
public trust in our government. e Code should be drafted clearly and administered fairly and equitably by
the IRS with timely guidance to inform taxpayers.
“…[E]nforcement of the law is not only a means to raise revenue. It is also a matter of fundamental fairness.
It is important for honest taxpayers to know that, when they le their taxes accurately with the IRS, other
people are doing the same.” -Secretary Janet Yellen
41
Complexity also creates opportunities to engage in tax fraud or aggressive tax avoidance maneuvers.
Fraudsters seek refuge behind the complexity, as it may be dicult for the IRS to detect noncompliance. In
FY 2022 alone, the IRS assessed fraud penalties totaling $306,823,808.
42
e combination of inadvertent mistakes, reduced self-assessment and voluntary compliance, and outright
fraud generates a signicant nancial risk to tax administration. Complexity contributes to the “tax gap,”
which is the tax liability owed versus what is voluntarily paid.
43
e most recent estimates of the tax gap place
it at $496 billion, with projections growing to $540 billion per year.
44
Outdated Code Does Not Fit Modern Families
e American family has changed, and the Code has not kept up, as divorce, cohabitation, blended families,
and multigenerational family arrangements have become more common.
45
The American family has changed, and the
Internal Revenue Code has not kept up.
BLENDED COHABITATION DIVORCE
MULTIGENERATIONAL
Childcare arrangements are increasingly challenging,
46
as it has become common for children to split their
time between dierent households, and an increasing number live with or are supported by non-parent
relatives.
47
Only 51.6 percent of children living in families with incomes at or below 200 percent of the
Federal Poverty Level were in families with married couples.
48
Children of low-income households were more
likely to live with a single parent or in multigenerational households, a cohabitating household, or a family
with at least one non-biological child, as compared to children of higher income families.
49
e qualifying
child rules for EITC and ACTC should more accurately reect their target population.
50
e individual income tax laws are structured so an individual taxpayer les a return once a year based on
a ling status such as being single or part of a family unit. e unit is based on legal relationships, child
residency, and support. ere are ve child-related provisions that use the denition of qualifying child: Head
of Household (HoH) ling status, Child and Dependent Care Credit, CTC, EITC, and the dependency
51Annual Report to Congress 2022
exemption.
51
e Code and the way child credits are structured were established when the traditional family
was a married two-parent household. Determining who can claim a child, given the outmoded standards,
leads to administrative conicts, with many children being excluded entirely.
52
e rules do not allow for
more than one caregiver to claim the same child; they instead have a complicated system of tiebreaker rules
that are hard for even tax professionals to apply.
53
Selecting the applicable ling status is also dicult to understand. Many taxpayers are not formally divorced
or legally separated but are living separate lives. e IRS prohibits them from claiming HoH ling status
unless they meet additional requirements of IRC § 7703(b).
54
If they select the married ling separately status
but do not have access to the Social Security number for their estranged spouse, they are forced to paper le.
55
Unfortunately, for the 2020 through 2022 ling seasons, paper ling a tax return prolonged the time it took
to receive a refund by many months.
56
at delay has an impact on those already facing nancial hardships.
A study has shown that even a one-week delay in the refund would put 30 percent of families in a nancial
situation that would prevent them from paying bills on time.
57
e National Taxpayer Advocate continues to
call for the IRS to enable all taxpayers to e-le tax returns.
58
Outdated Code Excludes Children
Congress should adapt the Code to ensure children can access tax benets. As the cost of housing increases,
households may also include multiple unrelated working adults and cohabitating families. Data shows
families are moving to less xed household types where the composition changes through the course of
the year.
59
e standards used to determine eligibility may exclude children not in traditional childcare or
housing arrangements.
e refundable credits, including EITC and ACTC, are meant to provide nancial support to those caring
for children. However, the current requirements for these credits leave claimants who make errors exposed
to examination and exclude children in need of aid from accessing tax benets.
60
Furthermore, EITC and
ACTC are directed toward a population of taxpayers least equipped to navigate its complexity.
61
Qualifying Child: Uniform Definitions Should Be Uniform
e term qualifying child is dened in IRC § 152(c). It is meant to be a common denition throughout
the Code, yet there are confusing and complicated deviations from this uniform denition. Figure 2.2.3
illustrates the complexity of these deviations.
For example, a qualifying child for EITC must be under 19 (or 24 if a student), while a qualifying child for
the CTC must be under 17.
62
IRC § 152(c)(2) lists dierent qualifying “relationships” that would make
someone a qualifying child for benets like the CTC or EITC. is list includes children, grandchildren,
stepchildren, nieces, and nephews. In the case of a taxpayer who is married but seeking to be treated as
unmarried for claiming the HoH status, the list is more limited. Only a child or stepchild – not a grandchild
– will allow the taxpayer to meet the requirements to be considered unmarried for HoH ling status.
63
ese
variations are complex and needlessly confusing. Not surprisingly, many taxpayers do not understand the
dierences in requirements, so they assume qualifying for one automatically means they qualify for the
other.
64
Uniformity on qualied child requirements throughout the Code would reduce complexity. e
National Taxpayer Advocate recommends modernizing the denition of a qualifying child so the rules should
reect real-life living arrangements.
65
52 Taxpayer Advocate Service
FIGURE 2.2.3
66
IRC § 152 Qualifying Child Common Definition Deviations
Relationship Test
Residency Test
Age Requirement
Support Test
Other
Requirements
i.e.
Illustration of How the Requirements Exclude Taxpayers
IRC § 152(c)(1)(B) requires the qualifying child to have the same principal place of abode for more than
one-half of the year as the individual claiming the child as a dependent. is residency test results in the
greatest number of erroneous EITC claims.
67
is may result from more complicated custody and childcare
arrangements. If a child lives between parents or other caregivers’ homes, the child may be excluded entirely
from receiving tax benets.
Example: Children Are Excluded From Social Benets
A taxpayer who is a single mother works in a hospital on the night shift every weekday. She has
two children and earns $31,200 a year. She relies on the grandmother of the children for childcare.
e children stay with the grandmother for part of the year and attend school in the school district
where the grandmother lives. e children live with their father for three months over the summer.
However, this mother provides most of the nancial support for her children throughout the year.
When this taxpayer prepares her taxes, she attempts to gure out if she can claim the EITC and
CTC for her children. She reads the instructions for Form 1040 (114 pages), which informs
her she may need a Schedule 8812. She reads the section on EITC, which points her to
IRS.gov/EITC. She visits the website, which provides a dizzying array of links about the credit.
She looks at Publication 596, Earned Income Credit (44 pages). She has spent several hours
learning that her children must reside with her for over six months (183 days) to be able to claim
them on her return.
68
A year of 365 days minus 90 days with their father over the summer leaves
275 days. Her children are with her mother 180 nights a year (ve nights a week for nine months).
e children reside with her only 95 days a year. She wonders if her mother would be able to claim
her children to receive the EITC funds. She decides to pay a tax preparer to help her gure this
out. She pays $240. e preparer explains that no adult meets the 183-day requirement. Even if
the children had stayed with their grandmother enough days to meet the threshold, she was retired
and only received Social Security, which does not count as earned income. e children will not
have access to those funds since no parent or caregiver meets the criteria. is taxpayer just spent
53Annual Report to Congress 2022
about 13 hours and at least $240 on tax preparation services to determine she is not entitled to
credits that would help her support her family, a result inconsistent with Congress’s intent when
creating these credits.
69
Complex Rules Are Difficult for the IRS to Administer
e web of rules that govern qualifying children are inconsistent, unintuitive, and outdated. e IRS lacks
independent sources of information to verify whether the taxpayer claiming a child meets the multitude
of requirements.
70
e shift to administering social benets through the Code places tax return preparers
in dicult positions. ey are not social workers; yet they are now engaged in a due diligence process of
reconciling all the benets to which a taxpayer may or may not be entitled.
71
According to the Department of the Treasury’s FY 2020 Report, EITC claimants account for more than
40 percent of audits conducted on individual taxpayers.
72
In more than 40 percent of cases where the IRS
originally agged the EITC claim as invalid, and the taxpayer received assistance from TAS, the IRS ruling
was reversed.
73
Claiming EITC involves over 20 separate determinations, including tiebreaker rules.
74
Seventy percent of improper EITC payments are from authentication errors.
75
is involves authenticating
the relationship, residency, lings status, and custodial arrangements. “Qualifying child” errors are the most
signicant EITC overclaim in terms of dollars, caused by the failure to provide proof of the residency test and
the relationship test.
76
e IRS does not have a database to show relationships between taxpayers or verify
where children live or the other information necessary to validate the accuracy of this refundable credit prior
to issuing a refund. e IRS does not have the statutory authority to address these issues at the point of
receiving the return; instead, it addresses the overclaims through a long audit process.
77
To reduce complexity in administering the rules around the EITC, the National Taxpayer Advocate has
recommended separating the EITC into two credits: a worker credit and a child credit.
78
When Congress
enacts a provision, the data used to substantiate entitlement to the provision should be data that is accessible,
such as using the vehicle identication number to conrm entitlement to electric vehicle credits.
79
e annual
wage data (Forms W-2) required to verify the worker credit is already available to the IRS, and it can easily use
the data to verify entitlement to the worker credit.
Furthermore, complexity is hard for the IRS to manage. With each addition to the Code, the IRS must
generate forms, draft publications, update computer codes, train sta, and answer millions of telephone calls.
e IRS cannot handle the volume of inquiries it receives currently.
80
Contemporary Small Businesses
It is not only families that have changed dramatically since the enactment of the Internal Revenue Code
of 1986. Modern businesses also pose a new reality. e existing tax laws do not reect the current work
environment.
81
In 2021, 16 percent of Americans earned money from the gig economy as independent
contractors without withholding.
82
Taxpayers may take on multiple gigs to make ends meet. ey receive
information from multiple third-party platforms, making tax compliance dicult.
83
It can take 40 hours to
learn about depreciation methods, recordkeeping, and reporting it on tax forms.
84
ese gig economy workers
do not receive tax guidance from the service platforms.
85
e National Association for the Self-Employed
reported:
• irty-four percent of those who reported earning income from the gig economy did not know they
needed to le quarterly estimated tax payments;
86
• Forty-three percent had not set aside money to pay their taxes and did not know how much they
owed;
87
and
• Ninety percent indicated they used a tax preparer or software, and over 50 percent of those who relied
on the preparer or software paid over $150.
88
54 Taxpayer Advocate Service
Self-employed individuals, which includes gig workers, sole proprietorships, and independent contractors,
must submit quarterly estimated tax payments.
89
e quarterly due dates are illogical. e rst and fourth
estimated payments are due two weeks after the close of the quarter while the second and third are due two
weeks before the close of the quarter.
90
is is confusing and does not set up taxpayers for success. It is
challenging for self-employed individuals with incomes that are highly variable to estimate and pay for periods
of time that are inconsistent.
91
To address this inconsistency, Congress should amend IRC § 6654(c)(2) to
reect a standard date of the 15th day after the quarter ends.
92
Another example of complexity was the legislative change reducing the reporting requirements from $20,000
to $600 on Form 1099-K.
93
On December 23, 2022, the IRS postponed changing this threshold until 2023
due to lack of guidance and taxpayer confusion.
94
In light of the challenges, the National Taxpayer Advocate
would ask that Congress carefully consider the threshold and that the IRS issue guidance quickly.
Example: Small Business Taxpayers Burdened by the Code
In need of a more exible schedule, in 2021, a taxpayer became a rideshare driver for a rideshare
app. Before then, he had never been an independent contractor. In 2022, he must complete his
annual taxes. e driver believed the rideshare app was tracking everything. In January 2022, he
gets a Form 1099-NEC from the company reporting his income. In March, he goes to a return
preparer to do his taxes. e return preparer asks for his records and the amount he paid in
estimated tax payments. e driver tells the preparer he only has a Form 1099-NEC and can log
into the rideshare app to see his trips. He did not keep any other records because he did not know
anything else would be required. He also did not pay any estimated taxes because this is his rst
time hearing about such payments.
In the past, he had worked as an employee and was accustomed to having withholding taken from
his paycheck. His preparer can glean from the app the total number of miles driven while on
routes. e preparer can use that with the standard mileage rate of 62.5 cents per mile.
95
But the
preparer tells him there is an option of using actual expenses with depreciation or an IRC § 179
deduction. ey will have to run the numbers both ways to see which is more advantageous. is
doubles the time it takes to calculate the expense deduction. e driver did not keep a mileage
record of trips from his home to his rst ride each day. His preparer informs him that if there were
a home oce, the mileage would be considered business mileage, but if not, those amounts would
be considered personal.
96
is further complicates the ability to compute the allowable IRC § 179
deduction for the vehicle. e preparer tells the driver it may be too late for him and that he may
face penalties for this year but explains his obligations for the next year.
A gig economy worker like the one described above and more traditional small business owners
face many recordkeeping obligations. An alternative to this time-consuming burden could be a
standard business deduction that would be a percentage of gross receipts.
97
It functions much like
the option between claiming a standard deduction or itemizing deductions. Schedule C small
businesses could have the option of claiming a standard deduction or, if their expenses are greater,
they could maintain the necessary records and compute their actual expenses. A standard business
deduction would accommodate gig economy workers, especially those paid by online platforms
and who receive Forms 1099.
98
ey could easily calculate gross receipts, take a standard deduction
against it, and within minutes comply with their tax obligations. is could radically reduce the
time burdens facing many small businesses.
55Annual Report to Congress 2022
e issues raised above are only a fraction of the challenges caused by complexities throughout the Code.
Other taxpayers, including overseas taxpayers, large corporations, multinational companies, partnerships,
estates, and exempt organizations face their own issues due to Code complexity.
99
e tax laws should be
simple enough for people and business owners to prepare their own returns or at least understand their
returns. e Code should not inadvertently entrap taxpayers; rather, it should clearly delineate each taxpayer’s
obligations and benets. e tax laws should identify and minimize areas of noncompliance. e Code
should make it easy for the IRS to administer the tax laws while also reducing burdens on taxpayers and
practitioners.
Congress has the unique opportunity to update the Code and simplify it in the process. Congress must
remove the complexity in the Code and eliminate burdens on taxpayers. e National Taxpayer Advocate
recommends simplifying and modernizing the tax laws to enhance understanding and public condence in
the fairness of the tax system, reduce taxpayer compliance burdens, and improve tax administration.
e National Taxpayer Advocate recommends that Congress:
1. Use uniform denitions throughout the Code.
2. Adopt a consistent and more modern denition of “qualifying child” throughout the Code.
3. Restructure the EITC and CTC by allowing separate worker and child credits to make it
simpler for taxpayers and reduce improper payments.
100
4. Amend IRC § 6654(c)(2) to set the estimated tax installment deadlines 15 days after the end of
each calendar quarter (i.e., April 15, July 15, October 15, and January 15).
101
1 Hearing on Spotlighting IRS Customer Service Challenges, Hearing Before the Senate Comm. on Finance
.
Tax Administration: Compliance, Complexity, and Capacity, POLICY C
.
3 See generally
Guiding Principles of Good Tax Policy: A Framework for Evaluating Tax
Proposals
5 Id.Tax Administration: Compliance, Complexity, and Capacity, POLICY C
.
Budget Reconciliation: The Basics,
10 The Necessity of Complexity in the Tax System, L
.
11
12
13
14 Id.
15
16
56 Taxpayer Advocate Service
17 Id.
18
19 Id.
20 All Countries and Economies,
21 , T
F
Inventory of Currently Approved Information Collections,
22 .
23 Understanding the Tax Reform Debate: Background, Criteria and
Questions.
24 Complexity: The IRS Does Not
Report on Tax Complexity as Required by Law
.
25
26
27
28 Id.
29 Id.
30 Tax Administration: Compliance, Complexity, and Capacity, POLICY C
.
31 Whose Child is this? Improving Child-Claiming Rules in Safety Net Programs
YALE L J., .
32
33 Id.
34
35 Programs Susceptible to
Improper Payments Are Not Adequately Assessed and Reported
.
36 Id.
37 Id.
38 Id.
39 SeeReturn Preparer Oversight: Taxpayers Are Harmed by the Absence of Minimum Competency Standards
for Return Preparers, infra.
40 Hearing on Spotlighting IRS Customer Service Challenges, Hearing Before the Senate Comm. on Finance
.
41
Carrollton, Maryland.
42
43 Tax Administration: Compliance, Complexity, and Capacity, POLICY C
.
44
see also
45 Increasing Family Complexity and Volatility: The Difficulty
in Determining Child Tax Benefits, I
.
46 Whose Child is this? Improving Child-Claiming Rules in Safety Net Programs
YALE L J.,
Increasing Family Complexity and Volatility: The Difficulty in Determining Child Tax Benefits, I
.
47 Increasing Family Complexity and Volatility: The Difficulty in Determining Child
Tax Benefits, I
Beyond the Nuclear Family: Trends in
Children Living in Shared Households, D
48 Increasing Family Complexity and Volatility: The Difficulty in Determining
Child Tax Benefits, I
. See also
Earned Income Tax Credit: Making the EITC Work for Taxpayers and the Government
.
57Annual Report to Congress 2022
49 Id.Beyond the Nuclear Family: Trends in Children Living in Shared Households,
D
.
50 Increasing Family Complexity and Volatility:
The Difficulty in Determining Child Tax Benefits, I
see also
Earned Income Tax Credit: Making the EITC Work for Taxpayers and the
Government.
51
52 SeeSee, e.g.infra.
53
54 infra.
55
.
56 SeeProcessing Delays: Paper Backlogs Caused Refund Delays for Millions of Taxpayers, supra.
57 Tax Administration: Compliance, Complexity, and Capacity, POLICY C
Delaying Tax Refunds for Earned Income Tax Credit and Additional Child Tax Credit Claimants, TAX POLICY C
P P
.
58 T
ADVOCATE
.
59 Increasing Family Complexity and Volatility: The Difficulty in Determining
Child Tax Benefits, I
.
60 Whose Child is this? Improving Child-Claiming Rules in Safety Net Programs
YALE L J. ,
Left Behind: The One-Third of Children in Families who Earn Too Little to Get the Full Child Tax Credit, C P
OCIAL POLICY.
61
IRS Does Not Do Enough Taxpayer Education in the Pre-filing Environment to Improve EITC Compliance and Should Establish
a Telephone Helpline Dedicated to Answering Pre-filing Questions From Low Income Taxpayers About Their EITC Eligibility
.
62
63
64 Increasing Family Complexity and Volatility: The Difficulty in Determining Child
Tax Benefits, I
.
65 Compilation of Legislative Recommendations to Strengthen Taxpayer Rights and
Improve Tax Administration
for Taxpayers and Reduce Improper Payments
.
66
67
.
68
69
70 Social Welfare Considerations of EITC Qualifying Child Noncompliance
.
71
72
73 Reducing Overpayments in the Earned Income Tax Credit, C
POLICY P
74
75
.
76
.
77 Id.
58 Taxpayer Advocate Service
78 SeeCompilation of Legislative Recommendations to Strengthen Taxpayer Rights
and Improve Tax Administration
Simpler for Taxpayers and Reduce Improper Payments
79 IRS Issues Immediate Guidance as EV Credit Changes Are Enacted, TAX TODAY
.
80 SeeTelephone and In-Person Service: Taxpayers Continue to Experience Difficulties and Frustration
Obtaining Telephone and Face-to-Face Assistance to Resolve Their Tax Issues and Questions, infra.
81 Request for Guidance in Key Areas
related to Employees Working Remotely
82
83 Sharing Economy: Participants
in the Sharing Economy Lack Adequate Guidance From the IRS
T ADVOCATE
.
84 Sharing Economy: Participants in the
Sharing Economy Lack Adequate Guidance From the IRS
see alsoShortchanged: The Tax Compliance Challenges of Small Business Operators
Driving the On-Demand Platform Economy
85 Id.
86 Id.
87 Id.
88
89
90
91
92
93 See
.
94 See
T ADVOCATE
.
95
96 .
97 The Standard Business Deduction
98 Id.
99 SeeOverseas Taxpayers: Taxpayers Outside of the United States Face Significant Barriers to Meeting Their
U.S. Tax Obligations, infra.
100 SeeCompilation of Legislative Recommendations to Strengthen Taxpayer Rights
and Improve Tax Administration
Simpler for Taxpayers and Reduce Improper Payments
101 SeeCompilation of Legislative Recommendations to Strengthen Taxpayer Rights
and Improve Tax Administration Adjust Individual Estimated Tax Payment Deadlines to Occur
Quarterly
