Tax overhaul: Looking to IRS scandal for momentum

Washington • The storm engulfing the Internal Revenue Service could provide a boost for lawmakers who want to simplify U.S. tax laws — a code that is so complicated most Americans buy commercial software to help them or simply hire someone else to do it all.

Members of Congress from both political parties say the current uproar — over the targeting of conservative political groups — underscores that overly complex tax provisions have given the IRS too much discretion in interpreting and enforcing the law.

"This is the perfect example of why we need tax reform," said Rep. Tim Griffin, R-Ark., a member of the tax-writing House Ways and Means Committee. "If you want to diminish and limit the power of the IRS, you have got to reduce the complexity of the tax code and take them out of it."

There are still formidable obstacles to completing a major tax overhaul this year or next. Democrats and Republicans start off with opposite views on whether the government should levy more taxes and on who should pay what share. The two sides also don't trust one another, making agreement o changes difficult.

Most taxpayers pay someone to do their taxes or they buy commercial software to help them file. In a report earlier this year, national taxpayer advocate Nina E. Olson ranked complexity as the most serious problem facing both taxpayers and the IRS. People simply trying to comply with the rules often make errors and overpay or underpay, she said, while others "often find loopholes that enable them to reduce or eliminate their tax liabilities."

The IRS scandal has little, if anything, to do with most everyday taxpayers, yet some lawmakers hope the attention will help galvanize support for the first major tax overhaul since 1986.

A little over two weeks ago, the IRS revealed that agents assigned to a special team in Cincinnati had targeted tea party and other conservative groups for additional, often burdensome scrutiny when they applied for tax-exempt status. The targeting lasted more than 18 months during the 2010 and 2012 election campaigns, hindering the groups' ability to raise money, according to a report by the agency's inspector general.

The ensuing storm has cost two top IRS officials their jobs, and a third has been placed on paid administrative leave. Investigations by Congress and the Justice Department are under way.

The IRS was screening the groups' applications because agents were trying to determine their level of political activity. IRS regulations say that tax-exempt social welfare organizations can engage in some political activity but the activity cannot be their primary mission. It is a vague standard that agents struggled to apply, according to the inspector general's report. Lawmakers in both parties have complained for years that overtly political groups on the left and right have taken advantage of the rules, allowing them to claim tax-exempt status and hide the identities of their donors.

"There are countless political organizations at both ends of the spectrum masquerading as social welfare groups in order to skirt the tax code," said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee. "Once the smoke of the current controversy clears, we need to examine the root of this issue and reform the nation's vague tax laws pertaining to these groups."

Baucus' counterpart in the House, Ways and Means Committee Chairman Dave Camp, said he, too, thinks the scandal could boost efforts to simplify the tax code.

"The complexity of the law didn't require the IRS to target people for their political beliefs," said Camp, a Michigan Republican. But, he added, "I think giving the IRS less discretion is going to be important, and that's what a simplified code would do."

Camp and Baucus have been working for months on the herculean task of simplifying a tax code that has undergone about 5,000 changes since 2001. At nearly 4 million words, Camp likes to say the code is "10 times the size of the Bible with none of the good news."