AICPA: complexity eroding voluntary tax compliance, especially among small businesses.

Complexity is eroding voluntary compliance with our tax laws, the AICPA told the House Small Business Committee recently.

"By and large, small businesses obey the law, but it's only human to inadvertently disobey a law if you do not or cannot understand the rules," said Ronald B. Hegt, a member of the AICPA Tax Executive Committee. "The lack of deliberation in the legislative process, the frequent law changes in recent years, and the increasing magnitude and complexity of the Internal Revenue Code create serious compliance issues for small businesses," he said.

Hegt said a good tax system needs to be understandable to taxpayers and to those who administer it. He went on to identify areas of the tax law that pose particular difficulties for small business owners that need clarification. Hegt said that the Alternative Minimum Tax should be eliminated; that a more objective test needs to be implemented to determine whether workers are classified as employees or independent contractors; that objective, administrable tests relating to the capitalization, expensing and recovery of capitalized costs need to be developed; that capital gains rules need to be simplified; and that estimated tax safe harbors should be rationalized.

Additionally, allowing new small businesses to select any fiscal year-end from Apr. through Nov. would increase their prospects for survival, he said. The flexibility to choose a fiscal year-end allows start-ups to be more productive during their busiest period by spreading the workloads and easing recordkeeping burdens, by increasing their access to professional advisers by smoothing workloads over the year, and by providing them with marginal amounts of additional operating resources, Hegt explained.