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U.S. Tax Code Is a ‘Nightmare’

“The tax code is a mess, no, make that a nightmare,” says Tom Herman. The long-time tax expert is stepping down after over 40 years at the Wall Street Journal.Our own tax expert, Raife Neuman, says that although Herman’s message may be a no-brainer for any of us who have tried to navigate the labyrinth of the U.S. tax code, it’s an important reminder of the deep problems in tax law.

I [...] leave with a growing sense that our tax system is in shaky condition and needs a major overhaul. We need a system that is much simpler and less burdensome. That won’t happen with mere tinkering around the edges. Many people who have held top jobs at the IRS and Treasury agree. Our federal tax system is “so shot through with deductions, credits, exclusions, loopholes and outright noncompliance that it fails in its essential job of raising revenues efficiently,” says Charles Rossotti, a former IRS Commissioner. “The complexity and instability of the tax system also leads people to believe that the average person always gets stuck, while the big hitters find ways to avoid paying, regardless of the advertised tax rates.

As Will Rogers once observed about tax forms: “Even when you make one out on the level, you don’t know when it’s through if you are a crook or a martyr.”

What does Herman see ahead? A crackdown on individuals in the form of audits. Further restrictions on off-shore tax havens. And the revival of the death tax.

The article is well-worth reading not just for Herman’s insights, but also for several anecdotes from his time on the tax beat. Here’s our favorite:

Strangest request: A reader who called himself a “senior, senior citizen” wrote several years ago to say he had amassed $2.1 million of stock-market losses.

“In order to use (and not lose them), I would have to marry a woman with large capital gains,” he wrote. He said his accountant told him “it is not necessary to live together, and a divorce can be had after the tax loss is used up.” If he filed a joint return, “her tax savings would be split between us. Needless to say, she can be properly protected by a prenuptial agreement. Your advice on how I might find such a lady would be greatly appreciated.”

He added: “And should a fee or reward not be paid (and how much) to a person finding her?”

We love to see that entrepreneurial spirit of trying to spin losses into gains!