In a letter to the IRS Commissioner Everson from the AICPA, Thomas Purcell, III, chair of AICPA Tax Executive Committee, points out that the recently published 2005 instructions for Form 1040, Schedule D, will impose a significant new burden on the report of capital gains and losses, by requiring taxpayers filing Schedule D to list each capital gain or loss transaction on a separate line.
The AICPA indicates it believes this requirement would, in addition to creating a substantial reporting burden, be inconsistent with current IRS electronic filing information presentation options and thus, generally discourages the electronic filing of individual tax returns.
The letter also points out that for the many taxpayers who are involved with hundreds (and in some cases, thousands) of security sales transactions during the course of a calendar year, the time required to manually list each individual capital gain and loss transaction would create a significant burden, and, in the case of taxpayers using paid preparers, unnecessarily raise the overall cost of preparing the return. The letter also offers a possible alternative: the attachment of year-end tax reporting statements from brokerage firms, which practitioners already routinely attach to returns.
For a while, especially with regard to e-filing, I thought the IRS was making a successful effort in working with practitioners to establish a more congenial working relationship. The possible change for the 1040 reporting of capital gains and losses for the upcoming tax season, if finalized, will be a giant step backward.
The AICPA is to be applauded for pointing out this burden before the tax-filing season begins. As the AICPA letter indicates (a bit nicer then I would have) the IRS should reconsider imposing this new costly compliance burden on taxpayers and practitioners.
I hope the IRS takes quick action and reverses itself again permitting capital gains and losses transactions in a summary fashion. Failure to do so will wipe out much of, if not all, the goodwill that it has been building up over the last few years with practitioners, and will end up greatly frustrating the many individual taxpayers that file Schedule D.
