AICPA Cites Complexity as Barrier to Tax Compliance

“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,” Ronald B. Hegt, CPA and a member of the American Institute of Certified Public Accountants (AICPA) Tax Executive Committee told the House Small Business Committee on April 27, 2005.

Complexity is one of the reasons cited by AICPA for eroding small business’ voluntary compliance with tax laws. The AICPA believes simplifications, even administrative ones, by the Internal Revenue Service (IRS) could increase overall voluntary compliance.

“We see it as a way of fostering fewer errors on tax returns,” Hegt said. Simplification would mitigate taxpayers’ need to rely on vague, contorted interpretations of the law that have resulted in marketing of abusive transactions.”

Hegt defined a good tax system as one which was understood by taxpayers as well as those who administer it. Among the areas highlighted as being particularly difficult and in need of clarification for small businesses were:

  • the Alternative Minimum Tax
  • employee and independent contractor status
  • capital gains rules
  • tax safe harbors

    Hegt also recommended that new small businesses should be able to select any fiscal year end, between mid-April and November, in order to be more productive during busy seasons, improve their access to professional advisors, provide marginal amounts of additional operating resources and improve their chances of survival.

    “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,” Hegt said. “The AICPA has long understood the consequences of tax law complexity and has supported efforts to move toward a simpler tax system.”

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