I and others have written tomes about the complexity of the tax code and the burdens that tax law complexity imposes on taxpayers and the IRS alike. Taxpayers (and tax professionals) are often left wanting to pull out their hair, and comedians often mine the tax code for fresh material, especially during tax season.
In my recent report to Congress, I identified one issue that’s a poster child for tax law complexity.
To illustrate the absurdity of the issue, let’s start with an analogy. Have you ever gone into a supermarket to buy a gallon of milk and seen the following sign?
I have never seen a sign like that, and I’m guessing you haven’t either.
Yet this is a close analog to the rules governing the deduction for automobile expenses. One would think the cost of operating an automobile (i.e., gas plus wear and tear) would be the same regardless of the circumstance. Yet the current standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical transport, or military relocation purposes are as follows:
|Taxpayer/Purpose||Deduction Per Mile|
|Medical Transport/Military Relocation||22¢|
There are times when tax professionals analyze the intricacies of seemingly absurd legal distinctions and almost see them as logical – until they have to explain them in plain language to a client.
For the benefit of tax professionals and historians, here are the intricacies that explain how these three rates came to be set. Congress codified the 14-cent standard mileage rate for charitable miles for tax years beginning in 1998, and it did not index the rate for inflation. By contrast, the IRS has the authority to set the standard mileage rate for business purposes annually by adding the fixed and variable costs of operating an automobile. The IRS also has the authority to set the standard mileage rate for medical transportation and military relocation purposes annually based solely on the variable costs of operating an automobile. Alternatively, taxpayers have the option to calculate the actual costs of operating an automobile in lieu of claiming the standard mileage allowance, but that requires a lot of additional recordkeeping.
Now try explaining to a client why one rate reflects only variable costs, a second rate reflects both variable and fixed costs, and a third rate was established 25 years ago by statute and doesn’t reflect current costs at all.
The use of different rates makes little sense and may cause confusion for taxpayers, tax professionals, and IRS employees. For example, someone may know the deduction rate for one purpose and, not realizing there are different rates, erroneously apply that rate for another purpose. Indeed, some civic-minded self-employed individuals may claim mileage deductions for both business and charitable purposes on the same tax return. Apart from the obvious confusion that may cause, an incentive will arise to allocate more miles for business purposes (65.5 cents per mile) and fewer miles for charitable purposes (14 cents per mile).
Not only do multiple rates cause confusion, but if a taxpayer uses the wrong rate, even inadvertently, he may be subject to a tax adjustment, penalties, and interest charges. This undermines public confidence in the fairness of the tax system. When a motor vehicle is determined to cost a given amount to operate on a per-mile basis, the standard mileage deduction rate should reflect that cost for all purposes. The existence of three automobile mileage deduction rates reflects the complex and evolving nature of the tax code and the competing interests of different groups and policies. Is that the right result?
Although the mileage deduction rate presents a discrete issue, there are many discrete issues like it that make the Internal Revenue Code complex and difficult to understand and apply. While each type of tax deduction serves a unique purpose, a consistent and simplified system would benefit taxpayers, the IRS, and society. By promoting fairness, efficiency, and clarity, a simplified tax code would help ensure that taxpayers are able to make informed decisions about their finances and contribute to a more stable and prosperous economy.
In the National Taxpayer Advocate’s 2023 Purple Book, I recommended that Congress implement consistent standard mileage rates for business, charitable, medical transportation, and military relocation purposes by harmonizing Internal Revenue Code §§ 162, 170(i), 213, and 217 – and by indexing the rates for inflation in future years.
I encourage the tax-writing committees and Members of Congress to act on this recommendation. I also encourage Congress to review the other 64 non-partisan, generally non-controversial legislative recommendations I have proposed in the Purple Book to strengthen taxpayer rights and improve tax administration.
The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.