A postcard-sized tax return? Are they kidding?

By Daniel J. Pilla

As part of the goal to simplify the tax code, Republicans promised that tax simplification would create a tax return no larger than a postcard. The Tax Cuts and Jobs Act was billed as the most sweeping tax reform legislation in decades. We were told repeatedly that the code would be so simple that people would no longer have to spend countless hours in the process of complying with the law.

On June 20, Treasury Secretary Steven Mnuchin announced that Treasury would release a new Form 1040 he claimed will be the size of a postcard, "as promised." On June 27, the Treasury Department released the draft return for 2018.

A 'postcard'?

I reviewed the draft. It's is hyperbolic at best to say that it's the size of a postcard. First, the Form 1040 itself consists of two 8.5" x 5.5" pages. In that sense, you might call it a postcard. The front side of the return has just a few lines calling for name, address, SSNs, dependents, filing status, and contains signature liens. It resembles the top half of the current Form 1040.

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The back side has 22 lines. That's where you have to put in all the details relevant to the calculation of gross income and taxable income. These entries include wages, self-employment income, interest, etc., standard or itemize deductions, tax credits, adjustments to income, other taxes such as self-employment and so forth.

Of course, it doesn't end there. Within the 22 lines on the back side of the "postcard," the form asks you to attach as many as six difference schedules that accompany the "postcard." Each schedule is a page long (at least in draft form). The schedules are necessary to account for the various elements of the tax code that come into play in determining taxable income.

The six schedules that accompany the "postcard" Form 1040 are:

• Schedule 1, Additional Income and Adjustments to Income;
• Schedule 2, Tax;
• Schedule 3, Nonrefundable Credits;
• Schedule 4, Other Taxes;
• Schedule 5, Other Payments and Refundable Credits; and
• Schedule 6, Foreign Address and Third Party Designee.

Each of these forms potentially leads one to yet another form. For example, on Schedule 1, line 12, it asks for business income or loss. You are then asked to attach Schedule C to your return to support your entry. Likewise, line 13 asks for capital gains or losses, and you are instructed to attach Schedule D to support that entry. On Schedule 2, line 44(b), you are asked to report the tax owed on lump-sum distributions, and you are instructed to attach Form 4972. This is the case throughout the entirety of the six schedules listed above.

Are you kidding me?

Call it a postcard if you want, but in reality, it's nothing more than a re-designed Form 1040, with a list of new schedules. The schedules essentially take the place of all the various lines on the first two pages of the current Form 1040, starting with line 7, wages. So there's actually an extra step in the process of completing the new form.

Under the current system, for example, if you have a small business, you fill out Schedule C to determine your profit or loss. You then move the profit or loss number to Form 1040, line 12. That's two steps. Under the new system, you will: 1) fill out Schedule C to determine your profit or loss, 2) move that number to Schedule 1, Additional Income, where you will also list income from other resources (such as capital gains or alimony), and 3) move the grand total from that schedule to Form 1040, page 2, line 6.

The proposed Form 1040 reduces the number of lines from 79 to 23. However, that is disingenuous at best, since all of the other lines are covered in Schedules 1 through 6. That is where you report additional income, credits and other deductions that have been omitted from the Form 1040 itself.

How is that easier?

This is just more of same charade Congress has been playing with tax law "simplification" for decades. In terms of bottom-line compliance with the tax code, the proposed form does nothing to lighten the load. The process will continue to be time-consuming and complex. And frankly, most citizens already filed tax returns on what amounts to a postcard. About 70 percent of all tax returns are short forms – 1040A and 1040EZ.

This is not tax reform

As I said, the Tax Cuts and Jobs Act is not tax simplification in any real sense. This is especially true for small businesses that will have to cope with §199A, which is the 20 percent deduction for small businesses. See my article on this in the April-May 2018 issue of PTT.

While the vast majority of the code's complexity remains, it is true that the Tax Cuts and Jobs Act is indeed a tax cut. As I reported in various articles over the past several months and in my blog on social media, about 80 percent of all taxpayers will see a reduction in their tax bill. That's good, but it's not "simplification."

The fact is no amount of tinkering can possibly simplify the code to the extent required. We have to face the fact that the tax code still is mind-numbingly complex and the most invasive federal law ever imagined. It must be abolished.

Daniel J. Pilla has been the nation's leader in taxpayers' rights defense and IRS abuse prevention and cure. Regarded as one of the country's premiere experts in IRS procedures, he has helped countless thousands of citizens solve personal and business tax problems they thought might never be solved.