Wednesday, February 4, 2009

Professor Maule's prescription for "tax law disease" --and mine

In Tax Problem or Tax Symptom?, Villanova Law Professor James Maule writes:

Over the years, I have suggested that members of Congress be required to do their own tax returns. My rationale is that if these folks were compelled to suffer through what other taxpayers must endure they might think twice before using the tax law to accomplish what ought to be handled by the Department of Energy, the Department of Commerce, the Department of Education, and a long list of other agencies that somehow cannot achieve their objectives without assistance from the Internal Revenue Service. Until now I haven't embellished my suggestion, but perhaps it makes sense to explain that after members of Congress prepare their returns, they would be examined by tax professionals before they were filed. Otherwise, there's too high a risk that all or nearly all of the returns would be wrong. I don't think I'd permit them to use tax return preparation software, because I don't want them to have a scapegoat for their return preparation inadequacies.

The present course of action, fixing the mistakes and giving apologies, is insufficient. These incidents are a warning sign to the Congress. They are the tip of a huge noncompliance iceberg that extends far beyond the world of tax fraud, tax shelters, and tax gimmicks. They illustrate the extent to which tax compliance is falling short. They serendipitously indicate why the Congress must avoid loading more tax junk into the pending legislation. Otherwise tax compliance will become a game of "if they catch me, I'll pay and apologize" played in a context of "it's unlikely they'll catch me." Tax compliance, and the fiscal integrity of the nation, will be reduced to this sort of nonsense. Already, one well-known tax fraud defendant has raised what is now being called the Geithner defense. There will be more. Many more.

Until these incidents of tax noncompliance are seen as symptoms rather than as isolated problems, the underlying tax law disease that is stifling the nation will spread. Until the Congress determines to stop jeopardizing the integrity of the tax law by using it for political purposes, the economic malaise that pervades the nation will deteriorate into much worse.

In 2008, Americans filed a record 155 million tax returns. Taking joint returns into account, that means roughly 200 million Americans signed tax returns last year.

The words above their signatures read:

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.

How many of the 200 million Americans who signed last year can say that they fully understood exactly what they were signing?

At our VITA site, we conduct very detailed intake interviews and then we do our best to help our taxpayers understand their returns and we take the time to walk our taxpayers line-by-line through their returns, answering any questions before asking them to sign. We use software, but we also double-check and triple-check the logic of the returns to make sure that they reflect the taxpayer's circumstances as accurately as possible. Many of the taxpayers at our VITA site say that the commercial preparers they have used in the past have never taken the time to do this for them.

Even so, it is hard to be 100% sure that anyone entirely understands all the ramifications of what they sign, because there are so many details, so much boilerplate in small inscrutable print, and because the tax code does not use some common English words in the same way that the rest of us do.

So, I have my own additional special prescription to add to Professor Maule's prescription for "tax law disease" for those who actually make tax policy.

All members of Congress who serve on the House Ways and Means Committee or the Senate Finance Committee as well as the Commissioner of Internal Revenue and the Secretary of the Treasury should annually take and pass the VITA volunteer tax preparer certification test and then volunteer a few hours each year at a VITA site preparing and explaining tax returns to a random cross-section of low-income working families and senior citizens.

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