The House on Tuesday (4/15/08) passed H.R. 5719, the "Taxpayer Assistance and Simplifcation Act of 2008". Text of the bill as passed is available at this link (along with other information). The vote was 238 to 179: 99% of Democrats supported the bill, and 93% of Republicans opposed it. The following indicates several of the key provisions, in some cases with my commentary.
- elimination of the outsourcing of federal income tax debt collection
This is an important provision that should pass. The IRS spent $71 million setting up and maintaining this program, which garnered only $20 million in revenues for the federal fisc in 2007, for a net NEGATIVE of more than $50 million. Two private companies made $12 million in 2007 by doing the work that the IRS should be doing, with 65 IRS employees devoted to overseeing the work of those two companies. (Of course, because the Congressional Budget Offices doesn't count the use of discretionary IRS resources in determining Pay-Go offsets requires, it scores the elimination of a program that is costing the federal government $50 million a year as though it were cutting off revenues to the federal government. That crazy scoring policy should be changed so that the full costs are taken into account of such programs.) It would be much more cost efficient for the IRS to use its employees to collect these "easy" tax debts rather than outsourcing the work to private companies. Tax debt collection is a quintessentially government function: privatizing it is a bad idea.
- modification of the tax return preparers' level of confidence requirement for penalty purposes to a "substantial authority" position for undisclosed positions and a "reasonable basis" position for disclosed positions
This is a step backwards. The change to a more likely than not confidence level requirement was the right one. The problem was that Congress did not raise taxpayers' confidence level requirements to the more likely than not standard at the same time. Regretably, the House has yielded to the influence of tax practitioner (law firms and accounting firms) and tax preparer company lobbying on this issue. Congress should read some of the emails over the listserves that I have seen since the change to a more-likely-than-not standard. It is clear that the change in the standard made tax return preparers much more cautious about advising super-aggressive tax positions. That is what the standard should do. The conference committee should remove this provision and instead raise the taxpayer standard as well to more likely than not. See my article on this issue : Tax Advice Before the Return: The Case for Raising Standards and Eliminating Evidentiary Privileges.
- Require health savings account users to document their use of funds to ensure that the withdrawals are in accord with the provisions.
This is a no-brainer. Given the increasing compliance problems in the income tax area, requiring documentation for use of health savings account withdrawals to pay health expenses is a no-brainer. Congress should do it. One Republican in the House complained mightily that having to prove one wasn't abusing the system could make people not use the health savings accounts. That's a misguided concern. When one pays medical bills, one has receipts. We have to document those expenses to insurance agenices, so why not to the federal government?
- Elimination of the loophole permitting American firms to avoid paying Social Security and Medicare taxes for U.S. employees working overseas for their foreign subsidiaries on government contracts.
This is a worthy proposal that should be enacted. Halliburton is a prime example of a US company that used a foreign shell company to avoid paying Social Security and Medicare taxes on compensation paid to US employees.
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