NSPA's Threshold Concept - Restoring a Modicum of Sanity to the Tax Code
Berkery, Peter M., Jr., The National Public Accountant
NSPA's Threshold Concept -- Restoring a Modicum of Sanity to the Tax Code
The NSPA Federal Taxation Committee last year proposed for the first time a new concept in dealing with the intricacies of the nation's revenue laws -- the "threshold" concept. Before explaining this concept, a little background should prove helpful.
The clamor for tax simplification has grown steadily louder and stronger since the Tax Reform Act of 1986 (TRA). While this is in some ways ironic, since TRA was supposed to aid simplicity, it is not coincidental.
TRA divided the taxpaying public in half. For some, TRA has in fact made tax matters demonstrably simpler; the number of short forms being filed rises each year. For others, however, the increased burden of TRA and subsequent "corrections" has been little short of nightmarish. In a nutshell, for those for whom TRA was good, it was very good; for those for whom it was bad, it was very bad.
This, too, is not entirely coincidental. One of the major policy objectives of tax reform was equity. Whether real or perceived, TRA sought to stem abuses of the tax system. In doing so, the natural (or perhaps unnatural) tendency was to create intricate hoops through which taxpayers would be required to jump in order to avail themselves of a supposed tax advantage. To some extent, the rationale underlying this complexity assumes that those whose finances are complex enough to be able to use these tax advantages can also afford to pay for the expertise to do so.
As independent accountants can testify, however, for too many taxpayers this is simply not the case. A large slice of middle-class America has been caught up in a web of intricacy presumably intended for wealthier targets. These taxpayers are, by and large, the clients of NSPA members.
Recognizing this, the National Society's Federal Taxation Committee set about developing a solution to this problem. From this, the threshold concept was born. NSPA has advocated this concept numerous times, before both Congress and the IRS. Recent events might even lead one to conclude that it has begun to receive the consideration it deserves.
The best way to explain the threshold concept is by way of example. The first time NSPA publicly advocated the concept was at an IRS hearing regarding the definition of "activity" under the passive loss regulations. The rules defining "activity" were mindboggling. …