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Financial Planning / Tax Strategies


Subject:  Re: The Cost Basis Crisis Date:  7/1/2006  2:39 PM
Author:  gurdison Number:  87638 of 127745

<We're being accused of a crime--indirectly, to be sure, but it's an accusation, nonetheless.>

No. You are being asked to back up what you put down on your return. You attest to the accuracy of the information under penalty of pejury. Unless or until congress changes things, the burden of proof remains on the taxpayer to prove their information is correct. It is not on them to prove you are wrong.

Compliance is an important issue. I agree with you that complexity is big part of the problem. As Phil has noted many times, that fault lies with congress and not the IRS. Their resources are not unlimited. Then there are the usual screwups that happen with anything related to the government. I remember a few years back when several billions were spent on a new IRS computer system. It all pretty much had to be written off. Instead of developing a comprehensive, fully integrated system, each part of the project was self contained. When it was finished (exactly to spec) none of the systems could actually communicate with eachother. I can't imagine a successful business ever doing such a thing, but that is a big difference between the public and private sector.

While I believe the majority of taxpayers make a sincere effort to comply, others do not. Much like children who want to know where the boundaries are, many taxpayers push the envelope as far as they can. They often sense that the odds are in their favor, since the sheer volume of returns, the overall complexity of the code and some general incompetance, that they may well get away with their tactics. They know there are many who tie up a lot of IRS resources simply because the tax code is so complicated.

Audits of specific areas may bring to light just how much of a problem there may be. It can also signal if it is caused primarily by confusion or overly agressive tax filers. The more that such items can be identified and remedied, the fairer it is for those who are complying with the law. Knowing that they are attempting to do such things should keep those who may otherwise stray in line. It can also make those who comply feel better knowing that people can not game the system so easily. Of course we would be better served if we know just how effective the various audits are.

I am all for simplification, but I seriously doubt we will see much of that happening. Many portions of the tax code have very entrenched interests supporting them. Many of the simplification proposals have had so many exceptions attached to them to make it laugable.

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