The Art of Complication as a Tax Resolution
Perhaps man's incomplete knowledge should be superimposed on any undertaking by the human species. Incomplete knowledge produces unintended consequences. You build a dam to generate electricity and protect against flood, you destroy fishery and erode the soil. You bombard the body with radiation to kill cancer, you kill other good cells.
This is manifest in every aspect of our life. If we knew this, we would not rush into decisions and complicate life. This is just as manifest in the tax laws, with ensuing tax problems as with anything else. Tax laws have become so complicated that it is very costly to comply with those laws. When laws become so complicated, people tend to ignore them because they don't understand.
Ignoring the laws has consequences. You could face IRS audits and IRS collection actions such as IRS levy, tax lien, wage garnishment and property seizure. Then you plead for mercy. You go to audit appeal. You incur hefty costs to hire a CPA or an IRS tax attorney to negotiate an IRS resolution or a tax settlement for your problem. Simply, you will knock on any door to obtain the tax help or the IRS tax relief that you desperately need.
How do things get so complicated? Just read the tax law changes affecting 2011 tax returns. The IRS created a form 8949 to report capital gains and losses. This form will pour into form D. Then form D will pour into form 1040. Now form 8949 will account for capital gains which were originally accounted for with existing form D and 4979.
And if you have foreign assets, another form please. The honor for the foreign assets goes then to form 8938 and the name of this movie is: (opening the envelope) Statement of Foreign Financial Assets- Glory be to God.
I am sure whoever designed the new form had a reason behind creating the extra form. Every time we complicate things we don't just complicate to complicate. We have reasons and maybe good reasons. But good reasons piled upon good reasons three times over will call for a revolution. This is how laws are disobeyed. This is one of the reasons behind some rebellions and this is how religions get ignored. Comply, comply to the death of common sense.
Another elegant example is the change in standard mileage rate. The IRS changed the mileage rate from 51 cents a mile to 55.5 cents a mile. So far so good. It is a welcomed tax relief for the use of the car. But here is the complication. The year has to be split: the first half of the year with old rates, and the second half of the year is the new rate. What does this mean? It means I have to keep records for the mileage in the first six months and those in the following six months.
That will be a classic case for a law that people usually ignore. Some may tell their tax practitioners that they drove fifteen thousand business miles for the whole year. When you tell them about the new law and that they must be split, they will tell you, split half and half. These are the good guys, the fair minded. Other guys will tell you I drove fifteen thousand miles, but by the operation of magic, they drove twelve thousand miles in the second half and only three thousand in the first half to benefit from the higher rate.
I don't understand why, if they wanted to change the law, they did not say that the new rate is effective January first. And if they don't want to be very generous to the taxpayers, they could have said 54 cents a mile from the beginning of the year. After all, the 55.5 is not a revelation from the Almighty. Please notice that it is 55.5 cents, not 55, not 56, as though man has the infinite knowledge. And 55.5 is the number.
Come on, guys. Give us a break, a tax break. Chill out, please.
Dean Alexander has 30 years experience as a CPA and tax consultant and he is currently on two radio shows. He is the managing director of National Financial Advisors (NFA Tax Help), a national firm headquartered in Houston. He is also a Chartered Financial Consultant and Chartered Life Underwriter. He consults exclusively on tax matters particularly tax audits and tax collections at both the federal and the state levels.
