IRS Spin on the Corporate Income Tax

The IRS recently made a series of public statements outlining its distaste with the corporate income tax system. The purpose of these public statements is to encourage Congress to reduce the corporate income tax rate, in exchange for reducing corporate tax breaks. The interesting part of this story is why the IRS – an entity which is supported by public tax monies – is openly stepping into the political/legislative arena.

The IRS’s stated position is that a lower tax rate would help keep US businesses competitive in light of slightly lower corporate tax rates enjoyed by corporations in many other industrialized nations. The IRS cites the corporate research and development tax credit and the low-income housing tax credit as examples of corporate “tax breaks” that should be eliminated.

The other – yet unspoken – side of this one-sided IRS debate is that the corporate research and development and low-income housing credits present Congress with a means of incentivizing certain corporate activities, i.e., keeping the US economy competitive by spurring research and development and by encouraging corporations to provide housing to the poor. These incentives make the Tax Code more difficult to administer.

Part of the problem is that corporate tax departments document and report on billions or even trillions of transactions in any one tax period. It is nearly impossible for the IRS to detect, examine, and determine that these billions or trillions of transactions are correctly reported for tax purposes. So what the IRS is now saying is “hey, reduce the corporate tax breaks so that it will make our job easier.” I can respect this position, as administering the Tax Code is no easy task.