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Constant changes in tax code make compliance challenging

With a tax code as complicated as the Internal Revenue Code, the possibilities for disagreements about how much tax is owed are many. In recent years, tax provisions have been subject to frequent change, and that has made tax compliance even more challenging.

Sometimes disagreements are resolved during the IRS audit process. Sometimes they require litigation in U.S. Tax Court. And there is also the chance that federal authorities will attempt to bring criminal tax charges.

No matter what the forum is for a tax controversy, however, the starting point is a tax code that is constantly changing. This year, Congress made many changes at the very beginning of the year, in a New Year's Day deal to avert the "fiscal cliff."

There were many other elements of the deal affecting taxes. The main takeaway for the media was that income tax rates will not go up for individuals making less than $400,000 a year. For married couples filing jointly, the figure is $450,000. For income over those thresholds, tax rates will return to what they were before the Bush-era tax cuts.

But those tax rates were only one element of the deal. It also addressed many other tax provisions, including deductions, capital gains, estate taxes, payroll taxes and the alternative minimum tax.

Of all the changes, the increase in the payroll tax rate is the one most likely to immediately affect the most people. Two years ago, Congress cut payroll tax rates for all workers, from 6.2 percent to 4.2 percent. Under the deal to avert the fiscal cliff, though, those rates will be going back up to 6.2 percent.

Source: "The Fiscal-Cliff Deal and Taxes: We'll All Pay More," Bloomberg Businessweek, Karen Weise, 1-2-13

Our firm handles situations similar to those discussed in this post. To learn more about our practice, please visit our IRS audits and appeals page.

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