Tax Code’s a Riddle, Even for the Experts

Accounting: Money magazine surveys of professional preparers show a lack of both uniformity and accuracy of results.

If you are among the one in two Americans who prepare their own income tax return each year and are having trouble understanding the new tax laws for 1994, you are not alone. In fact, you are not even unusual.

Keith Kimball, Internal Revenue Service spokesman in Los Angeles, said the current two-volume tax code is four inches thick. The code lists the new tax laws passed by Congress last summer. And that’s just the tax code.

The binders containing the tax regulations--which explain, clarify and contain examples of what the laws in the tax code mean--are nine inches thick, Kimball said. He has no idea how thick the first tax code was when it began in 1913, “but it was obviously a lot smaller,” he said.

Those who gripe about the Byzantine IRS rules figure that since 1913 the equivalent of a Rube Goldberg has been at work, making the process ever more complicated so that today virtually no one truly understands how much people actually owe each year in taxes.

Making sense of the tax code and regulations can be a daunting task even for people who advertise themselves as professional tax preparers. In December, Money magazine quizzed 50 tax preparers picked at random from the Yellow Pages of Atlanta, Minneapolis, Philadelphia, San Diego and Seattle about the new tax laws.

The preparers, which included representatives of H & R Block, Triple Check and Jackson Hewitt Inc., were asked 10 questions about the new tax laws. None of the 50 preparers answered all 10 questions correctly and only 34 got five or more right.

Last year, the magazine did another survey. It presented information about a fictional family of four and got 41 professional tax preparers (none from Triple Check) to prepare that family’s federal tax return. The correct amount of federal tax that the family owed was $35,643. Surprise: Not one of the 41 tax preparers came up with the correct tax owed. In fact, every one of the 41 pros came up with a different amount the family owed.

Even worse, only two of the 41 got within $40 of the correct amount owed and a third preparer came within about $500. The rest were about as accurate as an unguided missile: 85% of the tax preparers said the family owed more than they really did. One pro would have made the family overpay their taxes by nearly $39,000, while another preparer would have had the family underpay their taxes by about $3,800.

Meanwhile, the fees for coming up with these wrong tax returns, Money said, would have ranged from $375 to $3,600.

Of course, you can always prepare your own return and may feel more comfortable turning to the IRS for help in interpreting the tax laws as they apply to you. But be warned: There is no guarantee that the information dispensed by IRS “experts” is correct, either.

“Sometimes things get so complex, but it comes down to what is eventually correct,” said the IRS’ Kimball. “In a situation where penalties are assessed because of faulty information given by one of our employees, we will abate those penalties.”

However, you still have to prove that the IRS gave you the wrong information and that you didn’t screw it up yourself.