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TAX SEASON - BAH.

April 19, 2005

Somewhere in the misty dawn of civilization, the first deadline inspired the first last-minute scramble to meet it, and no doubt the first request for an extension.

While tax deadlines may be ancient, the preparation of so many of the most difficult 1040s in the final weeks of tax season is relatively modern. It started when the 1986 act and subsequent legislation forced most partnerships and S corporations onto a calendar year; the owners had to wait for the entity returns to be completed before they could do their own returns.

The lowered dividend rate enacted for 2003 returns has worsened the problem; many mutual funds and corporations have had to issue corrected 1099-DIVS because they miscomputed the amount of dividends qualifying for the 15% top rate. The problem is even worse when these dividends pass through a trust, partnership or S corporation.

While the 1986 tax reform did much to simplify the tax law (most of which has since been undone), it worsened workload compression. Forcing the preparation of many of the hardest 1040s into what really is now about a three-week window seems like bad policy. Sure, you can extend, but you have to have a decent idea of what the tax will be when you file the extension.

There doesn't seem to be much talk about the filing season crunch at the President's Tax Reform Panel. We can only hope whatever reform they come up with deals with some of these problems.

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