Say What? IRS Regulation Is Rated `Most Incomprehensible'
WASHINGTON - They could read it, even diagram it, but they couldn't explain it.
So last week, officials of an Illinois-based tax service gave their ``Most Incomprehensible Government Regulation Award'' to the Internal Revenue Service for temporary Treasury Regulation 469-1T (f)(2)(i)(C).
The regulation governs a type of loss that businesses may take on their federal tax returns, but the language is so convoluted that few, if any, business executives can understand it, said Collette Hessenaure, an official of Comprehensive Accounting Corp. of Aurora, Ill.
To prove her point, Hessenaure read the rule:
``If the taxpayer's passive activity gross income from significant participation in passive activities (within the meaning of section 1.4692T(f)(2) through (4)) exceeds the taxpayer's passive activity deductions from such activities for the taxable year, such activities shall be treated, solely for purposes of applying this paragraph (f)(2)(i) for the taxable year, as a single activity that does not have a loss for such taxable year.''
An IRS spokesman basically agreed with the complaint, saying the regulation was, indeed, ``complicated'' because the issue of passive income, usually rental income, is ``a complicated law to begin with.''
Still, IRS spokesman Steven Pyrek said the language in the regulation shouldn't bother most taxpayers.
``They are not intended to be read by the general public,'' he said, adding the IRS has tax ``guides that are designed for the public'' and explain the regulations.
Lizette Westney, a Howard University English teacher, said she found the writing horrid.
``It is a complex sentence that is just too complex,'' she told reporters. ``The problem with the sentence is repetition . . . (and) too many parenthetical clauses. . . . They're disruptive.''
But Westney, who had diagrammed the sentence for reporters, said, ``I could not make it a simple sentence.''
Hessenauer said accountants at the 200 offices her firm has franchised around the country had voted the regulation as the most confusing. It was the second year the IRS has won the honor.
Last year, the company complained about another Treasury regulation that governed employers' obligation to deposit withholding taxes from their workers in certain banks.
That prompted a congressional hearing and, Hessenauer said, a call from an IRS lawyer who seemed genuinely concerned about the confusion over the language.
Pyrek said the regulation essentially was designed to keep taxpayers from using losses from passive income properties to offset income from nonpassive sources.
The good news, he said, is that the IRS is attempting to write more of its regulations ``with a broad brush'' and is leaving the exceptions that clutter many regulations in separate tax rulings.