Tax preparation will take a little longer this year

The Associated Press

WASHINGTON -- It takes more than 22 hours for a taxpayer who itemizes deductions and has some investment income to finish this year's required Internal Revenue Service forms, the tax agency estimates. That is three hours longer than last year.

The U.S. tax code now stands at more than1.5 million words and climbing thanks to 1,260 changes enacted by Congress and signed by President Clinton in the past two years alone. For this year's filing season, the IRS had to develop 11 new forms and revise 177 others. All this has happened at a time when the same politicians voting for the changes are advocating tax simplification. Make the code simple enough that returns for most Americans would be the size of a postcard, say flat tax advocates. But for millions of taxpayers trying to do their taxes by April 15, the complexity is so daunting they are almost forced to seek professional help or a computer software program. A new ad campaign by H&R Block sums up the fear factor: "We Know. Do You?"A major culprit is the trend in the Clinton administration and Congress to enact tax credits for various social needs and to tinker with such intricate areas as taxes on capital gains from investments. "Every time there's a new benefit, it requires an additional line to the form and additional forms to compute those credits," said Sheldon Schwartz, national tax forms and publications director at IRS. "It's never as easy as we would like." But for politicians, the appeal of a tax break far outweighs such worries. "People will push the complexity into the background," said Rep. Amo Houghton, R-N.Y., a senior member of the tax-writing House Ways and Means Committee. "The credits are politically expedient and attractive." This year, some taxpayers for the first time can get a $400 credit for children under age 17 and two education credits -- the Hope and Lifetime Learning credits -- that provide up to $1,500 and $1,000 for certain postsecondary education expenses. Sounds relatively simple. But taxpayers claiming the child credit must complete an 11-line worksheet, and depending on the answers, a second 10-line form to determine if they qualify under the income limits. The education credits require completion of an 18-line form and come with their own book of instructions. Another area of difficulty is IRS Schedule D, where investors must report their capital gains or losses from investments. Even small- scale investors must fill out the 54-line form and navigate its confusing maze of tax rates for different investments -- which changed dramatically in 1997. Most forbidding of all is the alternative minimum tax. Intended to prevent the wealthy from escaping taxes through deductions and credits, it now threatens more and more middle-class taxpayers because its thresholds were never indexed for inflation. This means millions of taxpayers could be required to calculate both their regular taxes and their alternative minimum taxes -- and pay the higher of the two. That means completing a 12-line IRS worksheet to determine if a taxpayer is affected by the alternative tax and then a 50-line form to figure out the amount. Those who mistakenly believe the alternative tax doesn't apply to them could get an unwelcome surprise from the IRS if they don't do both calculations. For accountants, tax software firms and preparers such as H&R Block, this uncertainty means big business. The Block "We Know" ad campaign is aimed at giving people confidence that their taxes are being done right, a spokeswoman said. "What it really means is there are more opportunities to save money," said Linda McDougal of the Kansas City-based firm, which last year did one-seventh of all individual income tax returns. "To take advantage, you may need the help of a tax professional." The leading tax software, TurboTax from San Diego-based Intuit Inc., sold 3.3 million copies last year. Buyers "are looking to a trusted source for advice and to help them do their taxes," said Monica Muilenburg, director of product marketing. Despite talk in Congress of simplification, it doesn't appear likely anytime soon. Clinton's new budget proposes numerous credits for such things as care for the elderly and disabled, stay-at-home parents and disabled workers. Some have Republican support. On the other hand, Rep. William Coyne, D-Pa., plans to introduce legislation that would replace the capital gains form with a single line and would count investment earnings as regular income.

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