Compliance Costs of Federal Tax Code Keep Rising
January 10, 2006
Sell any stocks or bonds in 2005? If so, we hope you were keeping track because you now must submit that information to the IRS under new tax filing guidelines. From the Cleveland Plain Dealer:
If you sold stocks or bonds last year, you could spend a lot more time filling out your income tax returns this spring.
Accountants across the country are buzzing about a slim paragraph the Internal Revenue Service added to the instructions for filing 2005 forms. The change means that people with capital gains or losses must detail each transaction individually.
Previously, tax preparers simply wrote in the net gains or losses and attached a brokerage’s summary of the year’s transactions. Now, the IRS has explicitly prohibited that technique.
“It adds a whole level of complexity,” said Leon Taylor, a certified public accountant in Beaverton, Ore., who predicts tax preparation fees will climb as a result.
Whenever you sell an asset, such as a house or a share of stock, you experience a capital gain or loss. It’s a gain if the sale price was higher than you paid, a loss if it was lower. The government’s interest is in the net capital gain – that is, your combined gains minus your combined losses.
IRS spokeswoman Nancy Mathis said the new instructions merely clarify that the government needs details of individual gains and losses.
Today, the Tax Foundation released a study measuring the compliance costs of the federal tax system for calendar year 2005 (based on tax year 2004) at $265.1 billion. These changes in IRS guidelines being made for tax year 2005 will most likely increase that number even further for next year when we conduct this study.
For more on the costs of the complexity in the federal tax code, check out the full section on Compliance Costs.