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RECOMMENDED IMPROVEMENTS IN I.R.S. TAX ADMINISTRATION
WITH RESPECT TO THE AGED

The dependence of the federal income tax system on voluntary mass compliance implies necessarily the existence of a relatively simple and comprehensible means of complying.

Heretofore, the

record of compliance has been relatively good. However, since it is likely that simplicity with respect to the reporting of income and the assessment of income tax liability will continue to be sacrificed as the Congress attempts to legislate more equitable treatment of all taxpayers, this record of voluntary compliance is likely to deteriorate unless more steps are taken to assure the availability of competent counsel to assist in the preparation of federal income tax returns without charge. As return preparation and tax computation become less simple, the need for competent assistance without charge becomes more necessary.

It has been argued that with respect to the aged taxpayer, the willingness of the Internal Revenue Service to compute the retirement income credit of an eligible aged taxpayer who has made the initial entries on schedule R, is not enough. The I.R.S. should, in the opinion of these advocates, undertake completely the responsibility for preparing the tax return of the aged taxpayer and computing his tax liability. Such a course of action would require a substantial increase in I.R.S. personnel and administrative costs, and would constitute a substantial precedent inimical to the voluntary compliance nature of the federal income

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tax system. Since other available avenues of assistance. have not yet been completely perfected nor completely utilized, I.R.S. efforts at improved administration should be focused upon the se first.

The Department of the Treasury should continue its efforts to develop means by which payors of pensions and annuities can more readily inform the payee of the taxable portion of the gross annual payment. Since the computing of the taxable portion of the income from a pension or annuity often requires the use of materials such as annuity life-expectancy tables not readily available to the average retiree, Internal Revenue Service should therefore increase its technical assistance to pension and annuity plans in order that these plans may in turn assist the aged taxpayer by computing the taxable portion of his annual payments. An increased number of I.R.S. technical staff personnel and increased budgetary allocation should be devoted specifically to the achievement of this recommendation. Moreover, the Department of the Treasury and the Internal Revenue Service should be required to report periodically to the Congress with respect to their progress.

During the course of the April 15, 1970 tax overpayment hearings before the Senate Special Committee on Aging, it was recommended that a "senicr short form" be developed for use by the low and moderate income aged taxpayer who does not itemize his deductions. The combined impact of the 1969 Tax Reform Act and the 1971 Revenue Act, to the extent that these provisions made the itemization of deductions disadvantageous and therefore unnecessary

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for many aged taxpayers, may have facilitated the development of such a senior short form. Since a study of the feasibility of designing such a form was recommended by the Senate Special Committee on Aging following the conclusion of the 1970 hearings34 the Internal Revenue Service should make public whatever steps were taken subsequent to 1970 to implement this recommendation.

More

over, if the Internal Revenue Service did indeed undertake such a study but concluded that the development of such a form was nonfeasible, the agency should review the matter to determine whether changing circumstances have now rendered it feasible.

Henry R. Block, President of H & R Block, described the senior short form during the 1970 hearings as follows:

"I was in complete accord with the Treasury when the
old 1040A short form was abolished, because its ease of
preparation encouraged millions of taxpayers to cheat
themselves. But it was a generic "short form."
I pro-
pose a special "short form" for the elderly because it
will stop these people from cheating themselves.

"This special "senior 1040," designed for use only by taxpayers with incomes under a certain level, would basically omit all the sections of the current form which are causing the most problems to the elderly. The specifics can easily be determined by an analysis of 1968 and 1969 returns. Then, tax rates would be adjusted so that the taxpayers in this group are assessed approximately the same tax as if they had properly filed under today's more complicated set of rules.

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"In this way, we could insure that all elderly taxpayers receive the benefits accorded them by retirement income credit and abolish schedule R at the same time. By the same token, as long as income was under a certain level, the elderly taxpayer would not have to confront those complicated pension and annuity schedules. His double exemption would be incorporated within his lower tax rates and thus eliminate yet another minor step in proper tax reporting."35

345. Rept. No. 1464, 91st Cong. 2d Sess. 11 (1970).

35Hearings on Income Tax Overpayments by the Elderly Before the Senate Special Committee on Aging, 91st Cong., 2d Sess. 47-48 (1970).

38-811 O-74-9

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In conjunction with this recommendation for the development of a special senior 1040 form, excusing lower income aged taxpayers from the burden of having to file a declaration of estimated tax and preparing the form 1040ES, which he may never have encountered prior to retirement should also be considered. As the 1971 data

with respect to the sources of aged taxpayer income indicates, the aged taxpayer often has modest income from rental property, dividends, interest, capital gain, pensions, and annuities with respect to which a declaration of estimated taxes must be filed.36 The Internal Revenue Service should be encouraged to continue its publication of tax return preparation assistance materials and to make these readily available, without charge, to the aged taxpayer. Concomitantly, the Internal Revenue Service should increase its efforts to inform him via the electronic and printed media, of existing statutory filing requirements, of the special tax preferences intended for his benefit, and of the means of, or location for, obtaining free advice and counsel on his general or specific tax problems. An annual report should be submitted to the Congress disclosing the sums expended for these purposes and the numbers of persons aided thereby.

If implemented, the aforementioned recommendations would provide the aged taxpayer with a measurable degree of relief and would apprise the Congress on a continuing basis of the nature and extent of the efforts being taken to assist this minority.

However, it

361.R.C. §6015(a)(2) requiring, as a general rule, that every indi

vidual make a declaration of his estimated tax for the taxable year if his gross income can reasonably be expected to include more than $200 from sources other than wages.

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is tax preparation assistance counseling that affords the greatest potential for the amelioration of tax preparation problems confronting the aged taxpayer. Since the potential of this specific form of aid to the aged taxpayer has been only partially realized, I.R.S. administrative efforts should be concentrated here.

Presently, two alternative means, which are not mutually exclusive, are available for providing tax preparation assistance counseling to the aged. First, there is that which the Internal Revenue Service provides directly through its taxpayer representative service personnel in the local I.R.S. offices. Second, there is that which is provided indirectly by volunteer counselors who are trained by the I.R.S. under its V.I.T.A. program and who are participants in privately-sponsored tax counseling programs such as Tax-Aide. For a variety of reasons, the latter approach would appear to offer the more effective means for counseling the aged.

This

As the experience of aged volunteers who have participated as Tax-Aide counselors indicates, the aged taxpayer prefers to discuss his tax problems with another knowledgeable aged person. initial rapport is often essential to an appreciation of the dimensions of the aged taxpayer's particular problem, especially if the taxpayer is inarticulate. Since the counselor is a volunteer,

the aged taxpayer tends to assume a predisposition on the part of the counselor to his point of view.

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