Testimony of William Stevenson. on Reducing the Tax Burden: Modifications to Capital Gains Law before the Committee on Ways and Means, U.S. House of Representatives, February 12, 1998

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The National Society of Accountants (NSA) is pleased to testify on the issue of reducing the federal tax burden. NSA commends Chair Archer and the other members of the Committee on Ways and Means for holding this most important hearing on proposals designed to eliminate complexities or perceived inequities in the Internal Revenue Code.

My name is William Stevenson, and I am testifying today in my capacity as Chair of the National Society's Federal Taxation Committee. I have been an Enrolled Agent for many years and have served on the Commissioner of Internal Revenue's Advisory Group. I am President of National Tax Consultants, Inc., a firm that concentrates on taxpayer representation before the United States Tax Court, and also am President of Financial Services of Long Island, a mutifaceted tax preparation and accounting firm that services individuals and small businesses on Long Island, in Merrick, New York.

NSA is an individual membership organization. Through our national organization and affiliates in 54 jurisdictions, we represent the interests of approximately 30,000 practicing accountants. Our members are for the most part either sole practitioners or partners in moderate-sized accounting firms who provide accounting, tax return preparation, representation before the Internal Revenue Service, tax planning, financial planning, and managerial advisory services to over six million individual and small business clients. The members of NSA are pledged to a strict code of professional ethics and rules of professional conduct.

The National Society's comments today will focus on the complexity of the 18-month holding period for the new 10 and 20% capital gains rates, and proposals for an exclusion for interest and dividend income.

Capital Gains

The National Society strongly supports the proposition that a low capital gains rate is critical to spurring capital formation and prosperity for the American work force. However, the mind-boggling complexity in the new capital gains rates and reporting should be eliminated. In particular, NSA endorses elimination of the 18-month holding period involved with the new maximum 20% capital gains rate. Instead, we recommend that the top 20% capital gains rate become effective for capital assets held for one year or more.

The technical impediments imbedded in the Internal Revenue Code create the complexity which makes it difficult for individual taxpayers to comply with the law and for the Internal Revenue Service to administer it. We believe the current 18-month holding period for capital gains, enacted as part of the Taxpayer Relief Act of 1997, is an excellent example of needless complexity.

According to IRS statistics, approximately 50% of all federal tax returns are prepared by tax professionals. The August 13, 1997 issue of Money Daily states the capital gains measure of the 1997 law is likely to spur even more individuals to take their tax reporting obligations to professionals for assistance. Indeed, one tax professional quoted by Money Daily called the 1997 law the "Tax Preparation Industry Full Employment Act."

The National Society of Accountants supports the reduction in the top capital gains rate to 20 percent. However, in order to qualify for the 20% rate under the 1997 tax law, an individual must now hold his or her capital asset for 18 months or longer. Assets held for more than a year, but for less than 18 months, will be taxed under the new tax act at a maximum capital gains rate of 28 percent. The Schedule D (Capital Gains and Losses) for the 1996 Form 1040 contained 19 lines on the schedule, accompanied by a 13 line worksheet in the instruction book. The instructions for the form were three pages. Due to the capital gains provisions of the 1997 tax act, the Schedule D for the 1997 individual tax return contains 54 lines. The instructions for the form have increased to four pages. This reflects complexity, complexity the National Society considers to be needless. …