OH HAPPY DAY!



We, the Citizens for Tax Complexity, hereby declare June 28, 2012 to be an annual day of celebration.  Never before in our history has so much been done by so few (the Supreme Court of the United States) to advance the cause of Tax Complexity.

According to the National Taxpayer Advocate, Nina E. Olson, the IRS will need billions of dollars and thousands of new employees to fulfill its newest responsibility as national health care benefits administrator.  Ms. Olson brilliantly anticipated this expansion of IRS responsibilities in her 2010 Annual Report to Congress:
... In recent years, however, Congress has directed the IRS to administer
a host of new benefit programs:
■■ In 2007, Congress directed the IRS to make Economic Stimulus Payments (ESPs) to most U.S. taxpayers and some non-taxpayers.  Among the consequences, the IRS was overwhelmed with phone calls, receiving more than double the typical number.  This increase caused the percentage of calls getting through to a customer service representative to drop sharply, from 82% in fiscal year (FY) 2007 to 53% in FY 2008.
 ■■ In 2008, Congress directed the IRS to administer the first of several versions of the First-Time Homebuyer Credit (FTHBC).  Among the consequences of the various versions of the FTHBC provisions were: taxpayers claiming the credit could not electronically file their returns to comply with strict documentation requirements; significant IRS processing and enforcement resources were diverted from the IRS’s core work to administer the credit; and returns claiming the credit have been subject to a high audit rate and substantial delays in the delivery of legitimate refund claims.
 ■■ In 2009, Congress directed the IRS to administer the Making Work Pay (MWP) Credit for working individuals and to coordinate MWP credits with Economic Recovery Payments to certain non-working individuals.  Among the consequences, IRS processing resources were again diverted from core work, and more than seven million returns were not processed timely.
■■ In 2010, Congress passed major new health care legislation and has directed the IRS to administer large portions of it, including the Premium Assistance Credit, the Individual Penalty for Lack of Coverage, the Employer Penalty, and the Small Business Tax Credit.  The Congressional Budget Office (CBO) has estimated that the IRS will need between $5 billion and $10 billion over ten years to implement these provisions.
Just think of it.  The Supreme Court has determined that the "health care legislation", mentioned by Ms. Olson and known collectively as Obamacare, is constitutional as a tax to be appropriately administered by the Internal Revenue Service (IRS).  The IRS will need to hire and train thousands of new employees with the skills to implement the new provisions or transfer employees from tax enforcement duties to do these new jobs.

According to Ms. Olson, the expansion should cause the IRS to, "Create a program office, headed by a new deputy commissioner position, to provide strategic direction for all social benefit programs."  This will bring the total number of Deputy IRS Commissioners to three... an increase of 50% in commissioners and a commensurate increase in all of the administrative overhead that goes with it.

The resulting organization chart for the IRS will be more complex.  The increase in complexity will cause the government to spend a lot of money (read stimulate the economy) and hire a lot of people (read lower unemployment).  Stimulating the economy and lowering unemployment are worthy ends in and of themselves.  So much so, that any examination of the federal government's ability to afford either the new healthcare benefits or the bureaucracy necessary to administer them should be considered at least unpatriotic.  It is our opinion that the IRS should find a way to penalize any such examinations.  The country could use the money.

COMPLEXITY IS GOOD!

Thank you for your attention,

Citizens for Tax Complexity



IRS IS THE BENEVOLENT BUREAUCRACY

The IRS delivers results.  If the Internal Revenue Service (IRS) intended to deliberately increase civil penalties assessed to U.S. taxpayers by making the tax code more complex; and if the IRS was competent at its task; then you would expect to see measurable increases in both the amount of penalties collected and in the complexity of the federal tax system.  The good news is that the IRS actually measures and reports this progress at its website, IRS.gov.  What greater authority could we hope for?

All of us here with Citizens for Tax Complexity would like to commend the IRS, or as we like to think of it the Benevolent Bureaucracy,  for extraordinary success in the face of difficult times.  The total penalties collected by the IRS in 1999 were $7.5 billion.  In 2011, just twelve years later, that figure zoomed to $19.9 billion.  This is an incredible rate of growth given that the country suffered through  two recessions, two wars and a stock market meltdown that rivaled the worst in our nations history.  The IRS is to be congratulated for staying true to its priorities during such challenging times.

If you were compliant enough to avoid being penalized by the Benevolent Bureaucracy, you owe a debt of gratitude to the IRS for increasing civil penalties on other taxpayers.  These penalties enlarged the nation's coffers by $12.4 billion more in 2011 than in 1999 without relying on any tax increase, just increased penalties.  This alternative source of revenue offset what we, as taxpayers, had to pay in 2011.  How is that for Benevolent? 

The penalties assessed by the IRS have increased in value and importance over time.  Washington does not leave them to chance.  To assure that tax complexity would thrive during the first decade of the 21st millennium countless changes have been made to the four key publications used by our government to explain your tax obligations:
  1. The Internal Revenue Code (IRC), sometimes called Title 26, as authored by Congress, 
  2. Treasury Regulations authored by the U.S. Treasury Department to interpret the IRC and provide procedural guidelines
  3. Revenue Rulings which are the IRS's interpretation of the IRC in certain situations and 
  4. IRS Publications, summaries of the IRC authored by the IRS to provide simplified explanations of the code, but unfortunately they are not recognized as tax law and may not hold up in court for your defense
For an explanation of these publications read Making Sense of the Tax Code at Investopedia.com.  

There are many disparate estimates of the size of the federal tax code.  According to CCH Standard Federal Federal Tax Reporter it has grown since 1913 from 400 to 73,954 pages.  The federal code has been described as seven to ten times larger than the Bible and four times the size of War and Peace.  Regardless of the measure, you may rest assured that it is big and it is growing because complexity leads to confusion and confusion leads to mistakes and mistakes lead to penalties and penalties lead to increased revenue for the federal government.

As Albert Einstein said, "The hardest thing in the world to understand is the income tax."  While he may not have said so at the time, I suppose Mr. Einstein intended to conclude his comment with, "...as God intended."

Nina E. Olson,  National Taxpayer Advocate, probably would not agree that God intended taxes to be complex and to increase in complexity over time.  In her 2010 Annual Report to Congress, Ms. Olson said, "The most serious problem facing taxpayers – and the IRS – is the complexity of the
Internal Revenue Code."  She literally ranked complexity as the most serious problem of the twenty problems that she was required to report that year.   Her entire 2010 report is available for your review..

As the National Taxpayer Advocate, Ms. Olson heads the Taxpayer Advocate Service (TAS), an agency within the IRS tasked with helping taxpayers who can't get satisfaction with their tax issues through normal IRS channels.  She is required by law to make an annual report to Congress and in it to identify at least 20 of the most serious problems encountered by taxpayers and to make administrative and legislative recommendations to mitigate those problems.

In her 2010 report Ms. Olson went on to describe tax complexity in terms of labor required to comply with tax filing requirements.  She reported:
A TAS analysis of IRS data shows that taxpayers and businesses spend 6.1 billion hours a year complying with tax-filing requirements. To place this in context, it would require more than three million full-time employees to work 6.1 billion hours, making “tax compliance” one of the largest industries in the United States.  Tax law complexity imposes monetary costs on taxpayers as well. About 60 percent of individual taxpayers pay practitioners to prepare their returns, and another 29 percent use tax software to assist them.

Ms. Olson's observations about the complexity of the tax code were not news to Congress.  Congress had painstakingly created every word of tax law over two centuries.  It stands as a masterpiece.  A tribute to our form of government... of the people, for the people, by the people.

In 2010 Ms. Olson presented her tenth annual report.  She had mentioned the complexity of the tax code every year on her list of top twenty problems.  She also had the temerity to suggest ways to fix the problem of complexity.  It is this kind of rebellious thinking that makes one wonder how she was ever appointed to a government post.  Can't she see that we have the best tax system that money can buy?

Of course complexity is increasing.  Congress knows this.  Of course this causes confusion for taxpayers, professional tax preparers, tax attorneys and employees of the IRS.  Congress knows this.  Confusion causes errors.  Congress knows this.  Errors can be penalized.  Congress knows this.  The Benevolent Bureaucracy collects additional revenue in the form of penalties without increasing tax rates.  Congress loves this!

Why doesn't Ms. Olson get it?  Complexity is how we all win; citizens, politicians and bureaucrats.  Our country is built on federal tax complexity.  Even in her own words Ms. Olson said,  “...tax compliance is one of the largest industries in the United States."  Does she think it would be that big without the benefit of complexity?  Would she have us close down one of our largest industries?  COMPLEXITY IS GOOD!  (As long as we are not among the unfortunate souls who must pay the penalties.)  

In conclusion, I believe that we have reasonably verified that the Internal Revenue Service (IRS):
  1. deliberately increases civil penalties assessed to some U.S. taxpayers 
  2. makes the tax code more complex as a means to accomplish point #1
  3. is competent at its task of increasing revenues despite difficult economic times
  4. has built one of the largest industries in the country
  5. is truly a Benevolent Bureaucracy for taxpayers who avoid penalties

Thank you for your attention,

Citizens for Tax Complexity








I FIRED THE IRS

In the interest of full disclosure I should say that being an employee of the Internal Revenue Service (IRS) was not the most fulfilling experience of my career.  I was not destined to be there for long.  I am attaching for your review a copy of my letter of termination.  In it I terminate the IRS as my employer for failing to meet my expectations as an employee.  I share it with you in the hope that you will have some small insight into what IRS employees experience.

Contact Representatives of the IRS are subjected to myriad conflicts, insults, humiliations, slights, threats and arbitrary practices from their employer.  This is in my opinion intentional and consistent with the perfect design of the IRS's human resource management goal to keep employees on edge.  It is what I call the "kick the dog" theory of management.  Employees who are treated like dogs by their employer might be inclined to lash out at the next dog who comes along.  If you contact the IRS, you may find that you are the next dog in line.  Fearful and/or angry IRS bureaucrats may be more likely to make mistakes or deny you important information about your eligibility for penalty abatements or tax exemptions.  This could cost you in higher taxes, greater penalties or more interest charges; not to mention the time and expense you may expend to correct an error that you may not have caused.

Here are excerpts from the letter that I sent to the IRS:

February 10, 2012

Mr. James E. Rogers, Jr.
Accounts Management Field Director
Cincinnati Accounts Management Center (CAMC)

Mr. Rogers,

For the following reasons I am compelled to take actions that will terminate the IRS as my full time employer.

Whereas:
  • IRS management sets and gets low levels of performance.  The quality goals of the CAMC show a lack of imagination and leadership capability.  Call center goals range from 89% to 95% defect free performance versus the Six Sigma performance goal which is 99.99966% defect free.
  • The prevailing CAMC leadership tactic is to catch employees making errors rather than preventing the errors from occurring.   This practice is described as “job security” during new employee training.  It leads to an inflated staff and commensurate budget.
  • The IRS Total Quality program is focused on blaming employees for errors instead of examining the systemic causes of the errors.
  • CAMC management can’t be trusted to protect its employees from abusive (verbally and physically) managers.  This compels some IRS employees to seek protection through the Equal Employment Opportunity Commission.
  • CAMC management consistently fails to authorize employee annual leave requests in a timely fashion.  This is in violation of the leave rules that the IRS has approved.
  • CAMC leadership devalues the education and work experience that employees bring from outside of the IRS.
  • While the Congress continues to increase the complexity of tax law, the IRS tax codes compound tax law complexity and burden the smallest and most defenseless business taxpayers with arbitrary rules and regulations, i.e. Form 944 vs. Form 941 filing requirements.
  • Despite the increasing complexity of the work caused by the Congress, the federal government has frozen pay indefinitely for its employees, including IRS employees.
  • IRS management has unilaterally eliminated the Tuition Assistance Program for employees.
  • The IRS has failed to act on employee recommendations to eliminate thousands of unintentional taxpayer errors in the Electronic Federal Tax Payment System (EFTPS) by simply fixing the default date.
  • Taxpayers are unnecessarily kept waiting on phone lines while CAMC Contact Representatives perform clerical tasks because managers are manipulating “wrap time” performance measures.
  • CAMC leaders have cancelled the traditional Employee Appreciation Day.
  • CAMC leaders fail to exercise good judgment regarding employee safety.  They fail to close the facilities during snow emergencies (as declared by local government agencies) thereby exposing employees to dangerous traffic conditions.
  • CAMC management shows poor judgment when assessing disclosure errors where the Internal Revenue Manual (IRM) provides ambiguous guidance.
  • CAMC managers enforce “local procedures” that are not published and can only be learned by trial and error.
  • The CAMC facilities expose employees and their families to bed bugs.
  • CAMC management undermines team cohesion and social bonding by staggering employees’ breaks and lunch periods. 
  • The IRS is not family friendly.  All of the vacation and holiday disruptions, insect exposures, process failures, stress and annoyances visited upon IRS employees are experienced by proxy by their families and friends.
                    ...
For these and other reasons I declare:

I have realized that the IRS does not provide and is unlikely to provide in the future the work environment that I expect and require from my employer.  I refuse to work any longer under the conditions listed above.  My family has encouraged me to leave the IRS.  I hereby terminate the IRS as my full time employer effective...


Very truly yours,


Lex Hannan
Contact Representative
Internal Revenue Service


cc: ...

Thank you for your attention,

Citizens for Tax Complexity




THE IRS IS PERFECTLY DESIGNED.


When I started as an employee with the Internal Revenue Service (IRS) in November of 2006 my intentions were:
  1. To secure gainful employment for the benefit of my family and myself.  I had been unemployed by some very reputable corporations.  Unemployment payments exhausted after 13 weeks in those days and I discovered that being a day trader was both hard on the nerves and inconsistent for the  wallet.
  2. To access retirement and medical benefits that were denied me by previous employers due to untimely downsizing programs that were all the rage starting in the mid 90’s.
  3. To help the federal government catch the “bad guys”, the tax dodgers who fail to pay their fair share and thereby increase the burden on compliant tax payers.
  4. To provide tax advice and counsel to honest employers and small businesses by guiding them through the complex maze of federal tax code.  I had benefited from excellent advice and counsel from an IRS Contact Representative when I started a small business in 2004.  I hoped to help others as I had been helped.
At the time it did not occur to me to investigate what the intentions of the IRS might have been.  I began to wonder about the bureaucracy's motives soon after our Contact Representative training class assembled.  The trainers were not professional trainers.  They were "volunteers" who usually performed the tasks we were expected to do after we were trained.  The materials they were given to teach from were incomprehensible.   The predominant training technique was lecture.  From the extensive training experience I had in corporate America as both trainer and trainee, I knew this would not be effective for the skill development necessary to meet my expectation of a competent, hands-on, customer service representative.  Where were the scripts and the role plays?

The approximately twenty students who comprised our class would have been challenging even if the instructors were trained professionals.  We were a diverse bunch.  We ranged from nineteen year old high school graduates to post-fifty five year old souls with graduate degrees.  One student had experience as an auditor for a Fortune 50 company.   Another had run his own business.  Several had experience in the airline industry.  One was going to school at night for his MBA and another was studying for his license as a Heating Ventilating Air Conditioning (HVAC) contractor.  The military was well represented.  A couple of students had prior IRS experience and were attempting to move up in the organization.

Our class was not hired as "seasonal" employees, which is the norm for IRS Contact Representatives.  This allows the IRS to lay off employees during slow periods and bring them back when the work picks up.  This is particularly advantageous for the budget planners at the IRS, not so much for the workers who don't always appreciate being out of work for weeks or even months every year.  Before we were hired we were advised to "increase our chances of being selected" by indicating that we would accept a seasonal position.  That choice was not acceptable to me.  Apparently, it was not acceptable to the other members of our class.  None of us was seasonal when we started.


We were an inquisitive bunch.  Initially, the instructors saw this as interest in the subject and willingness to learn.  Later they saw our class participation as interruptions that were knocking them off schedule.  It got to the point that the instructors' pat answer to our inquiries was, "Because this is the IRS."  This was later abbreviated to, "Where do you work?"  I heard these refrains hundreds of times during my five years with IRS. 


We were flabbergasted!  Even with our diverse educational and chronological differences, we were familiar with the idea as presented to us by a vast array of teachers, "There are no stupid questions."  But here we were, trying to learn our new jobs, bored to death by lectures and readings from the Internal Revenue Manual (IRM), being told that the answer to the question "Why...?" is "Because we said so."


We left the training class after a few weeks without having demonstrated the ability to do our first assignment.  Our first assignment was to issue Federal Tax Identification Numbers also know as Employer Identification Numbers (EIN) to businesses so that their tax records could be tracked.  Assigning EIN's is a relatively simple task.  Taxpayers who call for EIN's are usually business that are just starting out.  They are generally excited about the potential they see for their new venture and want to get started on the right foot with the IRS.   Our training was focused on avoiding the dreaded "disclosure error".  Disclosure errors are those errors committed by IRS employees by giving proprietary information, like an EIN, to an unauthorized person.  The penalties include termination of employment and/or jail time.  That's right, jail time!  Posters were placed throughout the work place so that every day IRS employees are reminded about the number of employees who have been terminated or jailed for committing the dreaded "disclosure error".  This was a great morale booster.  We will revisit "disclosure errors" in future posts.


It seemed to me and several of my classmates that the IRS culture had determined that the IRS way was the right way because it was the IRS way, a somewhat circular argument.


Our class got into the habit of answering questions posed by our fellow students, as a chorus.  Our chant was, "Because the IRS is perfectly designed."


In fact every institution or process is perfectly designed to deliver exactly the results that it delivers, no more, no less.  It does what it does and therefore is in perfect alignment to do so.  All of the parts, practices, assets, and behaviors must be in alignment to produce exactly what it produces or it wouldn't produce it.  It seems nonsensical in some ways and obvious in others.  It is a construct that is used by process improvement consultants to get people involved in the current ways of doing things to see that they must do things differently to get different results.


But what could possibly be the desired outcome of a process that puts inexperienced instructors before new employees, uses ineffective training techniques, fails to answer employee questions, puts inexperienced employees in front of customers, threatens employees with termination or jail time for failing to comply with disclosure rules that vary depending on the phone line that the employee is taking calls from.  


With the help of my classmates I formed a theory that might explain the IRS's behavior.  We threw out our original assumption that the IRS was populated with dolts who were the unwitting implementers of the dictates of Congress. Instead, we assumed that the IRS was not an unintentional web of incomprehensible tax codes managed by malevolent bureaucrats, but an intentional collaboration of federal agencies and law makers achieving what was to them a desirable end..  Our new theory has held up fairly well even in the face of recent political initiatives associated with the presidential campaign.


The Theory:  The Internal Revenue Service is perfectly designed to achieve the results that it achieves.


Assumption #1:  The Internal Revenue Service is not a haphazard amalgam of rules and regulations passed by Congress at a logarithmic rate since the 16th Amendment to the Constitution was ratified in 1913.  Everything about the IRS is intentional.


Assumption #2:  All of the resources of the IRS are intentionally aligned with its purpose i.e. the IRS is perfectly designed to get the results that it gets.  The Department of the Treasury has hired the very best tax minds and bureaucrats to run the IRS.  


Given these assumptions, what could possibly be the intended outcome that is consistent with the massive tax code, its attendant complexity, the endemic confusion of taxpayers and the increasing penalties and interest fees that are being assessed to citizens who are usually law abiding?


As a boy I was fond of reading the works of Sir Arthur Conan Doyle and his brilliantly logical hero, Sherlock Holmes.  I am reminded of one of the detective's sayings, When you have eliminated the impossible, whatever remains, however improbable, must be the truth.

How could complexity and confusion be intentional components of our tax system?

The truth is that complexity is not seen by all as an evil to be avoided.  Complexity is the friend of the bureaucrat.  It is a means to an end.  Here is how it works in the case of the IRS.  It may hold true for other bureaucracies as well.   


It is the mission of the IRS to gather revenues to be spent by the federal government.  The IRS has three streams of income.  They include:
  1. taxes
  2. penalties assessed to taxpayers for failing to comply with tax rules
  3. interest that is charged for failing to timely pay the taxes or penalties that have been assessed
The IRS does not set the tax rates, that's the job of Congress.  However, the IRS does have a direct impact on both penalties and interest.  The IRS interprets tax laws passed by Congress and writes the Tax Code.  If the IRS wants to maximize its collections for its sponsors in Congress, then it can manipulate the tax code to make it more complex, which increases confusion, which causes more mistakes, which results in greater penalties and interest flowing into the federal coffers.  Complexity drives more revenue.  The brilliance in this plan is that the federal government, through its agency the IRS, can increase revenues without the members of Congress risking re-election by raising the tax rates.  The tax rates can remain the same or even decrease, but the total revenues increase due to growing charges for penalties and interest that are driven by our friend, complexity in the tax code.


The tax code continues to grow.  Every new "reform" adds more complexity.  Taxpayers and the IRS employees who counsel them are confused and prone to make errors.  Political parties vocalize their commitment to tax reform.  But they continue to spend the increased revenue that flows to Washington due to tax system complexity.

The IRS is perfectly designed to get the results that it gets... less risk to political careers, more money for Washington to spend.  It has taken decades to create the massive tax code that we have today.  Complexity in our federal tax code is no mistake.  It is intentional.

LONG LIVE COMPLEXITY! 

Thank you for your attention,

Citizens for Tax Complexity