FWIW, here's an email I sent to Prof. Bankman last April:
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I read with interest your letter about the Tax Filing Simplification Act of 2016, and your article "Simple Filing for Average Citizens: The California ReadyReturn." I agree that the tax filing burden on taxpayers is far too high, and I am encouraged that legislators are trying to do something about it.
But I am concerned about the details of actually accomplishing this given the complexity of the federal tax code, even for what appear to be "simple" situations. For the past five years I have volunteered with the IRS's Volunteer Income Tax Assistance program and helped low-to-moderate income taxpayers file their taxes. One of the first things I learned was how frequently a taxpayer's total tax is affected by factors other than what is on their W-2 or otherwise reported to the IRS. Examples include:
- complex calculations of "support" to determine whether a live-in relative is a dependent
- exact payments, and nature of payments, made to schools (generally not accurately reported on the 1098-T)
- business expenses
- which months the taxpayer had health insurance (often not reported correctly, or reported to a different person) and, if no insurance, whether an exception to the penalty applies
- what portion of the property taxes paid by the mortgage company on behalf of the taxpayer was for ad valorem taxes (the only kind that is deductible)
- what gambling losses are there to offset the gain reported on a W-2G?
- [litany of qualification questions for various education benefits]
- which exceptions apply to an early distribution from a 401(k)
Although each of these individually sounds like a corner case, my experience is that in aggregate a large percentage (perhaps more than half?) of the tax returns involved information that the IRS has no way of knowing.
So for advocates of IRS-prepared returns, of which I understand you to be one, I wonder what the response to these issues is? I can think of three:
1. The IRS should assume whatever results in the maximum tax liability, and it is up to the taxpayer to determine whether they can reduce their liability further.
2. The IRS should guess based on some combination of factors, and the taxpayer is responsible for verifying the guess (and is assessed penalties if they don't fix an incorrect guess?).
3. We should drastically simplify the tax code so these issues go away.
Each response has some obvious problems.
Anyway, this is just something that has been on my mind, so I hope you don't mind this email out of the blue to try to solicit feedback from someone who might have given the issue some thought.
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He never responded, so I am still left wondering the same questions.