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IRS takes up a chunk of taxpayers' cash, time

The statement

Americans spend more than $160 billion and 6 billion hours per year complying with the tax code.

U.S. Rep. Tom Price, R-Ga., in Twitter posts

The ruling

We know taxes and the federal tax code are tough and take time to understand. But 6 billion hours and $160 billion for compliance?

The numbers cited by Price can be traced to the Internal Revenue Service's independent ombudsman, known as the national taxpayer advocate. The ombudsman, currently Nina Olson, is described as the voice of the taxpayer before the IRS and Congress. Olson leads the Taxpayer Advocate Service, an independent organization within the IRS, in helping taxpayers resolve problems with the IRS, as well as working for change in the agency and in the federal tax code.

In a 2010 annual report to Congress, Olson said taxpayers — individuals and corporations — spend about $163 billion annually to comply with the tax code, or 11 percent of total income tax receipts. The cost of compliance was based on 2008 figures.

The NTA says there is no correct methodology for quantifying the costs of compliance with the tax code. The $163 billion figure is based on what was spent on personal and business income taxes (5.6 billion hours) multiplied by the average hourly cost of a civilian employee ($29.18, according to the Bureau of Labor Statistics). The calculations did not include time spent complying with requirements for employment, estate, gift, excise and exempt organization taxes. The annual compliance cost estimate based on 2010 requirements grew to $168 billion and 15 percent of total income tax receipts, according to the NTA's 2012 annual report.

That report, analyzing 2010 data, found that individual taxpayers and businesses spend about 6.1 billion hours a year complying with the filing requirements of the tax code. That figure does not include millions of additional hours taxpayers spend responding to IRS notices or audits.

Olson's office arrived at those figures by multiplying the number of copies of each form filed for tax year 2010 by the estimated average amount of time it took to complete each form. The IRS estimates the average time it takes to file an individual federal income tax return is 13 hours, with an average cost of $210 per return. This average consists of four hours for form completion and submission, six hours for record keeping, two hours for planning and one miscellaneous hour.

The authors of the NTA report admit that the figure for time spent complying with the tax code is difficult to accurately measure because the IRS has not kept up with technology improvements that have made the process more efficient.

We rate Price's claim True.

Edited for print. Read the full version at PolitiFact.com.

IRS takes up a chunk of taxpayers' cash, time 09/06/13 [Last modified: Friday, September 6, 2013 5:23pm]

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