Timing is everything, I suppose. At about the same time that my musings on the tax troubles of several of President Obama's nominees, in
Tax Problem or Tax Symptom?, entered the blogosphere, the Washington Post, in
Victims of the Tax Code? Not So Fast took the position that even though the tax law is complicated, the nominees' troubles were preventable. Several experts, including colleagues in the tax law professorship business, explained that these were not the most complex issues that taxpayers can encounter, that the complexity of the code is not an excuse for the errors on their tax returns, and that they should have known what was going on. Yet one practitioner, Kenneth Brier, a tax lawyer in Boston, noted, "What this is telling us is that even people who should know better somehow don't. People who should be able to hire good tax help still don't get it right."
So why aren't they getting it right? Back in 1997, Money Magazine (March 1997 issue, page 80), in what appears to be the last test of this sort that it conducted, asked 45 tax return preparers to do the tax return for a hypothetical family. There were 45 different results. None were correct. Fewer than one-fourth were within $1,000 of the correct answer. The tax liabilities that were computed ranged from $36,322 to $94,438. So why didn't these 45 experts get it right? Should we expect any better of a performance today, with eleven years of additional provisions, exceptions, definitional refinements, and other technical changes added to the tax law?
If it's not the unmanageable complexity of the tax code, then is it necessarily the incompetence of the preparers? Congress has created a tax system that is groaning under the weight of its own absurdity, teetering on the edge of a collapse no less striking than the track record of the economy during the past six months.
Consider the issues that created the problem. Geithner failed to enter into a particular Turbotax entry box his income from the International Monetary Fund. According to
this report an accountant told him that he did not owe self-employment taxes on that income. According to
this report the IMF provides its employees with information concerning their taxes, and that it provides assistance to employees who request it, though Geithner apparently did not do so. On the other hand, the same report observed that "Tax professionals noted that even trained preparers sometimes miss the subtleties involved in taxation of employees of international organizations." What Geithner did was sloppy, careless, and at worst, negligent. He didn't try to hide income. He didn't stash money in an off-shore trust. He didn't buy into some tax shelter deal. He didn't skim cash from the cash register. In other words, he didn't commit tax fraud.
The same can be said of Daschle's problems. He received a Form 1099 and handed it to the accountant who prepared his return. The Form 1099 was wrong. That's not Daschle's fault. Should he have audited the payor? How many taxpayers add up the interest credited by the bank to their checking or savings account to determine if the Form 1099 sent by the bank is correct? Should they be expected to do so? The Form 1099 was off by $80,000 but that was just a small fraction of the amount being reported. Had the error been one of several orders of magnitude, then it would have been much more obvious. It's not fraudulent to rely on a Form 1099 that is prepared by an independent third party. Daschle also failed to report the use of an automobile and driver provided by an employer. When Daschle was in the Senate, he received the use of a vehicle and driver for security reasons, and under the tax law the value therefore is excluded from gross income as a working condition fringe benefit. Only the astute tax practitioner understands the subtle distinction that causes a different result for the vehicle and driver provided to Daschle in his post-Senate enterprise. Again, he almost certainly thought he was doing the correct thing, probably because he was doing the same thing that had been done in the past, that is, not reporting any income on account of the vehicle and driver. No one knows if the accountant asked questions about the vehicle and driver. Unless taxpayers are required to review the substantive law analyses performed by their preparers, they should be held accountable for unpaid taxes, interest, and penalties, but they ought not be characterized as perpetrators of fraud or as deadbeats as
this commentary concluded.
There is no doubt that the taxpayer and professional tax return preparer error rate would decrease if the tax law were not so complicated. When Kenneth Brier tells us, "What this is telling us is that even people who should know better somehow don't," we should understand that the "somehow" is the inability of Congress to put a sound tax policy ahead of special interest lobbying. My suggestion that Congress might come to understand this point if its members were required to do their own tax returns, submit them for review, scoring, and repair before filing, and to publish their scores inspired Mary O'Keefe to embellish the suggestion. In
Professor Maule's prescription for "tax law disease" --and mine she proposes:
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.
Hooray! Yes, I'll vote for that idea. But I'd extend it to every member of Congress. Let them walk in taxpayer shoes for a while. Perhaps then they'll think twice about continuing to overload the Code.
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