Having considered the aged taxpayer and the nature of the tax preparation problems confronting him, some informed individuals have concluded that he tends to overpay his taxes - something which A 1965 survey he, a lower-income taxpayer, can ill afford to do. by the Internal Revenue Service of the accuracy with which recipients of federal civil service pensions and annuities were reporting these amounts on their federal income tax returns revealed that, in certain samplings, as many as 75 percent were reporting these amounts improperly. Moreover, two thirds of those reporting incorrectly overstated their taxable income and paid too high a tax.25 With respect to the retirement income credit, it has been estimated that from one-third to two-fifths of those eligible to avail themselves of this benefit, either fail to claim it or com26 pute it erroneously. While these estimates with respect to the R.I.C. are not the result of a scientifically-conducted survey, nevertheless, both the House Committee on Ways and Means27 and the Senate Committee on Finance28 have endowed them with some credibility by declaring that the complexity of the present credit prevents it from providing the full measure of relief intended. The April 15, 1970 hearings conducted by the Senate Special Committee on Aging on the subject of income tax overpayments by the elderly contained variously-supported assertions by a variety 25 Hearings on Income Tax Overpayments by the Elderly Before the Senate Special Committee on Aging, 91st Cong., 2d Sess., 29-30 (1970) (Statement of Edwin S. Cohen, Assistant Secretary of the Treasury for Tax Policy). 26Id. at 2; see also Hearings on Future Directions in Social Security Before the Senate Special Committee on Aging, 93d Cong., 1st Sess., pt. 5, at 443, note 1 (1973). 27H.R. Rept. No. 231, 92d Cong., 1st Sess., 238 (1971). 28s. Rept. No. 1230, 92d Cong., 2nd Sess., 588 (1972). 22 of witnesses that as many as 50 percent of the aged taxpayers overHenry W. Block, President of H & R Block, said pay their taxes. during the course of that hearing: "Do our over-65 taxpayers overpay their income taxes? Of course they do. Statistics relating to the extent of those overpayments are much better known to the Treasury, but there can be no doubt that our current laws and reporting forms, as they deal with tax reporting by our elderly citizens, have resulted in confusing, improper reporting, and a widespread failure to take advantage of the taxreducing devices available."29 Two witnesses, Othie G. Burk, former Vice President of the National Association of Retired Civil Employees, and Ira C. Funston, "(during the first year) we had four men who helped 75 Although Mr. Randolf W. Thrower, Commissioner of Internal Revenue in 1970, denied, during the course of those hearings, the existance of any evidence to indicate that 50 percent of the over-65 taxpayers were overpaying their taxes, he did admit, in attempting to justify the abolishment of the short form 1040A, that "a significant number of users of the short form were overpaying their 29 Hearings on Income Tax Overpayments by the Elderly Before the Senate Special Committee on Aging, 91st Cong., 2d Sess., 45 (1970). 30 Hearings on Income Tax Overpayments by the Elderly Before the Senate Special Committee on Aging, 91st Cong., 2d Sess. 9 (1970). 23 taxes because the short form did not allow many tax benefits such as itemized deductions, retirement income credit, sick pay exclusion, head of household status, surviving spouse status and so 31 forth. On the basis of the 1965 I.R.S. pension and annuity survey, the statements of the Committees on Ways and Means and Finance with respect to the underutilization of the retirement income credit, the general complexity of the tax laws governing the sources of income which constitute the major components of the AGI of the aged taxpayer, the number, length and complexity of the various forms and supporting schedules which must be used by him to report his income and assess his tax liability, and his physical, mental and academic limitations, it is reasonable to conclude that the aged taxpayer, relative to the non-aged taxpayer, tends to report his taxes erroneously, fails to avail himself fully of tax preferences intended for him, and in many cases overpays his taxes. Since his income is relatively limited in comparison with the income of the non-aged taxpayer, every effort must be made by the Internal Revenue Service to assist this special group of taxpayers to comply with the law and to cease overcomplying 31Hearings on Income Tax Overpayments by the Elderly Before the Senate Special Committee on Aging, 91st Cong., 2d Sess. 23 (1970). Since 1970, there has been some improvement in the situation of the aged with respect to the problems encountered in the preparation of federal income tax returns. First, the 1971 data of Table II (page 7 ) indicates that while the total number of tax returns filed has increased, the number of returns filed by persons aged 65 or over has decreased. 32These statistics reflect both economic changes occurring during taxable year 1971 as well as the effects of certain tax law changes introduced by the Tax Reform Act of 1969 and the Revenue Act of 1971. The Tax Reform Act of 1969, for example, contained provisions to phase in a substantially increased standard deduction and a low income allowance, which replaced the comparatively stingy minimum standard deduction. It also phased in substantially liberalized deductible personal exemptions. fective. All of these provisions are now fully ef Not only did the Tax Reform Act of 1969 render many low-income individuals, including many of the aged, non-taxable, but it also contained other provisions pursuant to which many of these were excused from the burden of complying with tax return filing requirements in order to obtain a refund for withheld taxes. under the certification procedure of I.R.C. 83402, an employee, by certifying to his employer that he had no federal income tax Now, 32At present time, a return need not be filed by an aged taxpayer who has less than $2,800 of gross income for the taxable year. See I.R.C. §6012 (a) (1) (B). liability in the previous year and expects to be non-taxable during the current year, may avoid the withholding of any income taxes from his earnings and consequently avoid the filing of a return to claim a refund. To the extent that the lowest income aged are, as a result of the 1969 Tax Reform Act and the 1971 Revenue Act, no longer subject to tax and no longer subject to filing requirements, the situation with respect to tax preparation has been improved. Indeed, even to the extent that, because of the more liberalized standard deduction, an aged taxpayer may avoid itemizing deductions and contending with Schedule A, the task of tax return preparation has been simplified. In addition to the effects of those pieces of legislation, the Internal Revenue Service has, since 1970, either initiated, continued or improved five separate courses of action designed to provide assistance to the aged taxpayer. First, the standard form 1040 and certain supporting schedules were improved to take account of special needs and limitations of the aged. For example, additional deductible items, such as hearing aids, dentures and eyeglasses in the case of the medical expense deduction, are now listed on Schedule A to help assure full tax advantage. payers are allowed to elect on Schedule R to have the Internal Revenue Service compute their retirement income credit. Form 104 0 now allows for a simplified method of reporting income from fully taxable pensions and annuities; consequently, many pension and Aged tax |