The U.S. tax code has become so incredibly complex that taxpayers are increasingly making unintentional mistakes -- and then being hit by penalties and interest from the Internal Revenue Service. "Penalties and interest are out of control," says former IRS Commissioner Fred Goldberg, charging that they "are just crushing people."
Political observers report Congress added tax penalties and interest to the tax code in the 1980s in an effort to raise money, demolish tax shelters and punish those seeking to avoid taxes. But those harsher penalties are hurting filers who simply make mistakes as they wade through the increasingly complex forms.
Until 1986, there was no difference between the rate the IRS charged delinquent taxpayers and the rate it paid taxpayers when it was late with refunds. Then Congress mandated a 1 percentage point difference. Currently, the IRS pays individuals 7 percent a year and charges 8 percent.
For businesses, the gap between the IRS's interest charges and the interest rate it pays can be as high as 4.5 percentage points.
Bills now before the House and Senate would do away with the interest differential for individual taxpayers.
Source: Paul Wiseman, "Critics Say the Burden is 'Breaking People's Backs,'" USA Today, April 15, 1998.