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1969 law has become scourge of tax filers

The alternative minimum tax is the IRS' top problem, a report states.

By ASSOCIATED PRESS
Published January 10, 2007


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WASHINGTON - A law meant to crack down on wealthy tax dodgers has instead become the most serious problem facing millions of other taxpayers.

For the government, meanwhile, the biggest tax problem is the billions of dollars in unpaid taxes, says national taxpayer advocate Nina E. Olson. She reported Tuesday to Congress on the hurdles Americans face in meeting their tax obligations.

Olson, who works independently within the Internal Revenue Service, also urged Congress to repeal IRS authority to contract collection activity to private agencies, saying the IRS is better trained and more efficient in going after delinquent taxes.

The advocate is required to submit an annual report to Congress listing at least 20 of the most serious problems encountered by taxpayers.

This year, the list was topped by the alternative minimum tax, which was enacted in 1969 to close loopholes that enable the wealthy to avoid paying taxes. But because the law was not indexed for inflation, a provision that originally affected about 20,000 taxpayers now hits tens of millions.

"Today the AMT is left to punish taxpayers for engaging in such 'classic tax-avoidance behavior' as having children or living in a high-tax state," the report said in its summary.

Rep. Charles Rangel, D-N.Y., the incoming chairman of the House Ways and Means Committee, and Senate Finance Committee leaders Max Baucus, D-Mont., and Charles Grassley, R-Iowa, have promised to address the AMT issue this year. Grassley, in a statement, said it was good that the advocate was "joining the chorus" on the AMT, which he described as "taxpayer enemy No. 1." But he said it was premature to call for ending the private collection program, saying it was just getting off the ground, and "we have to make it work."

The second most serious problem was the gap between what taxpayers should be paying and what the IRS is collecting, estimated at $290-billion a year. The advocate said that noncompliance by some taxpayers requires good-faith taxpayers to pay an additional $2,200 a year.

It said the gap could be narrowed by tax simplification, third-party information reporting and improved IRS compliance initiatives.

"Simplifying the tax code, particularly by repealing the AMT and reducing the inequities caused by the tax gap, will go a long way to helping America's taxpayers," Olson said.

[Last modified January 9, 2007, 23:55:29]


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