	Tax System: Issues in Tax Compliance Burden

Mr. Chairman, Representative Shadegg, and Members of the Subcommittee: We are pleased to be here today to discuss with the Subcommittee the results of work done on the burden that business and individual taxpayers face in complying with federal tax requirements. Finally, reducing the compliance burden on businesses and individual taxpayers will be a difficult undertaking because of the various policy trade-offs, such as revenue and taxpayer equity, that must be made. Complexities in the code can also result in the need to complete time-consuming calculations. IRS’ Administration of the Tax Code

Some business officials and tax experts also cited IRS’ administration of the federal tax code as contributing to business compliance burden, although to a lesser extent than the complexity of and frequent changes to the code. The Challenge of Reducing Business Tax Compliance Burden

While we did not identify existing reliable business tax burden cost estimates, there was consensus among the business respondents, tax experts, and the literature that tax compliance burden is significant and that it can be reduced. However, employers would face substantial additional burden and costs under the final withholding system and the tax preparation industry could be adversely affected under either system. encountered while complying with federal, state, and local tax systems.
Why GAO Did This Study

GAO discussed business and individual taxpayers' federal tax compliance burden.

What GAO Found

GAO noted that: (1) the compliance burden is due to the tax code's complexity, ambiguous language, and frequent changes; (2) many businesses are uncertain about what they must do to comply with the code; (3) recordkeeping, time-consuming calculations, the interplay of state and local tax requirements, and Internal Revenue Service's (IRS) administration of the tax code add to the burden; (4) estimating businesses' tax compliance burden and costs would be difficult, since businesses do not collect the data needed to make reliable cost estimates of their compliance; (5) the greatest reduction in the tax compliance burden could be gained by simplifying the tax code; (6) return-free filing alternatives used in other countries could reduce individual taxpayers' tax compliance and IRS administrative burdens, but employers, tax preparers, and state tax systems could be further burdened or adversely affected; and (7) reducing businesses' and individuals' tax compliance burdens will be difficult because of tax policy tradeoffs, such as revenue, equity, and social and economic issues.