October 8, 2009 - Phil Hodgen

Impressive complexity in tax returns

I just got off the phone an accountant in an unnamed Asian city who has prepared an impressive and immaculate amended 2008 income tax return for one of her clients (who is also my client).

It is an impressive job because the preparer did a thorough job without shortcuts. This, I know from personal experience, causes brain damage.

The foreign earned income exclusion, PFIC rules, foreign tax credit, AMT, etc. rules make a normal person’s tax returns quite frankly almost impossible to do correctly. The system is designed to cause failure by taxpayers.

I defy any non-tax person — even if you have a Ph.D in Astrophysics — to do correctly what B. did on this return. And when a task becomes too difficult for a normal person to do successfully, you need to question whether the task should be done at all.

In the past I have always said that anyone aspiring to be a politician should first own and operate a business for two years, faithfully meeting payroll for all of employees. THEN you may go be a politician and pass laws.

I now add a second rule. All of the top-level people at 1111 Constitution Avenue NW (that’s the High Temple of the Internal Revenue Service for those of you who haven’t worshipped at the shrine) must be hands-on tax return preparers for two tax seasons. Then and only then may you return to work for the government. If implemented, this rule would cut a lot of the BS out of tax enforcement.

Congratulations B. on a job well done.

Foreign Business Activities in the USA Nonresidents with US Activities Voluntary Disclosure