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GAO-14-652R 1 (2014-07-18)

handle is hein.gao/gaobaaidd0001 and id is 1 raw text is: GAO U.S. GOVERNMENT ACCOUNTABILITY OFFICE 441 G St. N.W. Washington, DC 20548 July 18, 2014 The Honorable Ron Wyden Chairman The Honorable Orrin Hatch Ranking Member Committee on Finance United States Senate Tax Policy: Differences in Definitions and Rules in the Tax Code The federal tax system contains complex rules and multiple definitions for the same or similar terms. These rules and definitions may be necessary to target benefits to specific groups of taxpayers, among other reasons. For example, according to a 2010 report by the President's Economic Recovery Advisory Board, most families with children receive at least two and frequently three or more child-related tax benefits.1 These benefits could be targeting lower income working families or families with child-care or adoption expenses. However, different rules and definitions can also impose a wide range of recordkeeping, planning, computational, and filing requirements upon individual taxpayers. Complying with these requirements costs taxpayers time and money. For example, income definitions, which are often used to reduce or phase out certain tax benefits, may be intended to target benefits to particular groups or prevent abusive tax- sheltering. However, because tax provisions phase out over different income levels using different definitions of income, calculating income can complicate tax preparation and increase opportunities for errors. Also, administering complex tax rules can strain the Internal Revenue Service's (IRS) ability to serve taxpayers because of the resources needed to develop guidance, clarify instructions, or address misreporting. You asked about definitional differences across tax code provisions and how they may lead to tax code complexity and taxpayer burden. This report identifies instances in the federal tax code where the same or similar term is defined differently or when taxpayers are subject to different rules under various tax provisions, particularly those aimed at similar objectives. To determine what is known about the differences in definitions and rules across provisions in the tax code, we conducted a literature review, consulted relevant laws and regulations, and interviewed representatives from the tax filing and preparation community and federal agencies involved in tax policy and administration. While we attempted to be thorough in our research methods, our findings are not generalizable or designed to be a complete catalog of differences in the federal tax code.2 To determine which tax code definitions were within the scope of our engagement, we applied the following criteria: (1) based within federal tax code; (2) affected individual 'The President's Economic Recovery Advisory Board, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation (August 2010). 2Detailed description of scope and methodology can be found in enclosure I. GAO-14-652R Tax Code Differences Page 1

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