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Advocate: Tax code so daunting overhaul urgently needed

Watchdog notes that 60 percent of filers aren’t preparing form without help.

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Olson defines "loopholes" as tax breaks that benefit someone else. She warns that targeting only narrow provisions won’t raise enough revenue to significantly lower rates or make the law much simpler.

"That’s what we’ve been trying to say to taxpayers, that the special interests are us. It’s not just oil and gas or whatever you want to point your finger at," Olson said. "That’s not where the money is."

At a glance

Top tax breaks for individuals

U.S. tax law is filled with so many credits, deductions and exemptions that Americans will be able to reduce their tax bills by about $1.1 trillion this year, according to congressional estimates.

Employer contributions toward workers’ medical insurance premiums and medical care are not taxed: $181 billion.

Retirement plan contributions and earnings are not taxed: $165 billion.

Mortgage interest deduction: $101 billion.

Lower tax rates on long-term capital gains and qualified dividends: $84 billion.

Deduction for state and local taxes: $69 billion.

Deduction for charitable contributions: $46 billion.

Most Social Security and veterans’ benefits are not taxed: $45 billion.

Interest on tax-exempt state and local government bonds is not taxed: $26 billion.

When someone dies, the capital gains on his investments is not taxed: $24 billion.

Income from some life insurance products is not taxed: $23 billion.

Sources: National Taxpayer Advocate (www.taxpayeradvocate.irs.gov/2012AnnualReport); Joint Committee on Taxation.

Tax filing season starts Jan. 30 for most filers

The Internal Revenue Service says late changes to federal tax laws should mean that more than 120 million taxpayers — about 80 percent of all filers — should be able to start filing their 2012 federal returns on Jan. 30. Others will have to wait until late February or March to file because the agency needs time to update and test its systems.

Those who will have to wait include people claiming residential energy credits, depreciation of property or general business credits. The filing season had been set to start Jan. 22 but was delayed because of the big tax package passed by Congress Jan. 1.

For information, go to http://www.irs.gov/Filing

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The national taxpayer advocate, an independent position with the IRS that Congress created to assist taxpayers in resolving problems, also criticized Congress’ recent budget cuts to the IRS.

On a budget of $11.8 billion in the 2012 fiscal year, the IRS collected $2.52 trillion, meaning it brought in $214 for every dollar it spent. On the margin, the IRS is estimated to bring in about $7 for every additional dollar it spends.

"It is ironic and counterproductive that concerns about the deficit are leading to cuts in the IRS budget, when those cuts are making the deficit larger," Olson wrote in the report.

The New York Times contributed to this story

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