Tax advocate: Simpler is better

Tax form with pencil pointing to "Amount you owe"

TEXT OF INTERVIEW

Tess Vigeland: Taxes are hard and no fun at all. But you've got to pay attention and pay up.

That goes double if you're the nominee to be U.S. Treasury Secretary overseeing the Internal Revenue Service. But Timothy Geithner ran smack into the tax man this week. Turns out he failed to pay Uncle Sam some $34,000.

But really, who hasn't gotten confused by all the forms and rules and receipts and, well, now I have a headache just thinking about it. So, apparently, did the National Taxpayer Advocate Nina Olson, who recently issued her annual report on the tax system and found it Tinman-ish in its lack of heart. Ms. Olson welcome to the program -- and may I ask how long it takes you to do your taxes?

Olson: I use a software program, and it took me about a day to gather all the paper up. And, you know, once I was in the software program it was fairly easy. But then I wanted to check it, and that took more time. I don't trust things.

Vigeland: So you would be among the people who, your office, you know, says would really like the IRS to simplify things?

Olson: Yes. I definitely want the IRS to -- well, it's not just the IRS. I want Congress to simplify the Internal Revenue Code, because the IRS actually has no control over what the law itself says. They do have control over how they administer the law.

Vigeland: I feel like I've been hearing this call for as many years as I've been doing taxes. Got to simplify it. Why doesn't it get done?

Olson: Well, I think there are a number of reasons. Right now the predominant reason is the existence of the Alternative Minimum Tax. Now what's happened over the years is it's pulled in more and more people, because some of the parts of the calculation haven't been adjusted for inflation. And the result is that by 2010, they're going to be 33 million taxpayers that will be impacted by the Alternative Minimum Tax.

Vigeland: How much of this is about, kind of, the rules themselves, and how much of it is the paperwork?

Olson: Well, I think that it's hard to separate out whether the rules drive the paperwork, or you get into paperwork for the sake of paperwork. We've talked about complexity of the tax code before in our annual reports that we give to Congress every year. Every form that the IRS produces, we're required by law to give an estimate on how long it would take to prepare that form. And we calculated that overall, each year, it takes about 7.6 billion hours to do those forms. And then if you take a full-time worker, how many hours that worker would work in a year, it would take 3.8 million full-time workers to work those 7.65 billion hours.

Vigeland: You also, in your recommendations, talk about the number of tax breaks that there are out there for education and retirement. Now, everybody likes tax breaks. What's the problem with them?

Olson: When I talked to the Presidential Tax Reform panel, I said -- one of the things I said to them -- as a general principle choice is good, but too much choice is paralyzing and confusing. And I think that's what we've got here in both the education incentives and the retirement savings incentives. You have 11 education incentives in the code. And with the retirement plans there are 16 such vehicles. That's just too much for people.

Vigeland: Let's talk a little bit about one of the other recommendations that you've made this year, which is perhaps the IRS might want to try to consider a taxpayers' financial plight before levying some sort of penalty or lean. What options do IRS agents have right now and how could that change?

Olson: Well, the IRS has a lot of options on the table, particularly in the collection realm. We have the ability to put taxpayers into installment agreements. They also can enter into what's called an offer and compromise. And what that says is even if the taxpayer made all the payments under and installment agreement, they still wouldn't pay the amount due. So we say, pay us what we think we could collect, whether it's immediately or over a period of years. We will forgive the rest of the debt.

Vigeland: So there are alternative options out there, but I don't think in general that people would characterize the IRS as a compassionate organization. I mean, are employees there empowered and trained to use these options?

Olson: That's the problem. The IRS writes rules and likes to do things a lot in an automated format. And wants taxpayers to fill out forms and send in all sorts of information up front. And it becomes daunting to the taxpayer, and they give up. And so taxpayers don't avail themselves of some of these alternatives. And the IRS puts barriers up, I believe, you know, for taxpayers getting some of these things.

Vigeland: Nina Olson is the National Taxpayer Advocate, and if I may be so presumptuous on behalf of the American people, thank you and we "heart" you.

Olson: Thank you.

About the author

Tess Vigeland is the host of Marketplace Money, where she takes a deep dive into why we do what we do with our money.

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