IS TAX SIMPLIFICATION EVER POSSIBLE?

Schedule D Spotlights Difficulty in Intentions vs. Realities

The results are in: Busy season was boom and a number of CPAs picked up new clients as more taxpayers, struggling with the complex changes to Schedule D, sought help for the first time. The IRS reports more returns signed by professional tax preparers this year. While not acknowledging Schedule D as the reason for this increase, the IRS estimates that the new form takes an average of four hours, 19 minutes to complete, up 17% from last year.

Change to the Schedule D form is just one recent example of how difficult it can be to carry out the intent of tax legislation. The resulting form to implement the changes in the capital gains tax and reporting requirements is a bit ironic given the recent attention to the need to simplify the nation's tax system. These days it is hard to keep up with the continuing talk in Congress on scrapping the tax code, restructuring the IRS, and other measures designed to simplify matters.

The big question is whether or not it is even possible to achieve simplification. History reminds us, for example, that the early days of the 1986 tax reform began as a flat tax intended to simplify the system, yet the final legislation was far from simple. In the political scheme of Washington, intent and reality often do not coincide.

A related issue to consider is the effect of technology on the process of drafting tax legislation. According to Alan Weiner, a partner with Holtz, Rubenstein & Co., LLP and past chair of the New York State Society of CPAs' Tax Executive Committee, technology has only made things more complicated. Since legislators and congressional aides can now easily and quickly use computers to run numerous calculations when developing legislation, the end result often adds more complexity to the process. Weiner points out that the 1997 Taxpayer Relief Act was drafted almost in its entirety by computers, perhaps the reason the act resulted with numerous technical complexities and other nuances.

Some CPAs muse that perhaps the only way to achieve simplification is to take a clean slate and start anew. This view is one of the driving forces behind the current push in Congress to revamp the entire tax code. Others, however, stress that the system has worked effectively in the past and a concerted effort can achieve simplification. Weiner is in this school and feels it is possible to "tinker" with the current code to get it right. Only time will tell.

See last month's cover story, "The Future of Tax Practice," for a related discussion on the possibility of tax simplification. *