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Tax reform blamed for complexity and "perennial change."


The Tax Reform Act of 1986 created the "unrelenting need for perennial change," testified Arthur S. Hoffman, chairman of the American Institute of CPAs federal taxation division, before the House Ways and Means Committee at hearings to measure the impact of the TRA on the effectiveness and fairness of the tax system.

The need for annual change, Hoffman said, is because "the budget deficit grew, yet the act was constructed to accomplish revenue neutrality. By its very nature--base-broadening and a low-rate structure--the act causes the budget deficit to be attacked annually" by allowing the passage of technical provisions that further complicate the law.

Hoffman said the act "added progressivity, a fairer share, enhanced efficiency and simplication--for some!" But other, higher-income taxpayers, who benefited from sharply reduced rates and a decreased share of taxes, also were hit with "constrained investments and virtually incomprehensible complexity."

Added Hoffman, "Many more taxpayers now resort to professional preparers. And there now is an array of rules that are imposing and so complicated they defy readily understandable description by regulation writers and tax practitioners alike."

Hoffman said CPAs have found increased complexity for individuals in the areas of passive activity losses and investment interest limitations. Businesses faced more complexity regarding uniform capitalization of inventory, corporate alternative minimum tax and restrictions in the choice of fiscal years.

Hoffman also said the administrative burdens and higher costs for small businesses as a result of the TRA's tax year conformity requirement have lessened compliance with the tax system.

The American Institute of CPAs is working with congressional staff and Internal Revenue Service representatives to advise them about these problems and develop solutions.
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Publication:Journal of Accountancy
Date:Apr 1, 1990
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