Lost in Taxation

If it seems as if the tax code was conceived by graphic artist M.C. Escher, wait until you meet the new and not improved Internal Revenue Service created by ObamaCare. What, you're not already on a first-name basis with your local IRS agent?

National Taxpayer Advocate Nina Olson, who operates inside the IRS, highlighted the agency's new mission in her annual report to Congress last week. Look out below. She notes that the IRS is already "greatly taxed"—pun intended?—"by the additional role it is playing in delivering social benefits and programs to the American public," like tax credits for first-time homebuyers or purchasing electric cars. Yet with ObamaCare, the agency is now responsible for "the most extensive social benefit program the IRS has been asked to implement in recent history." And without "sufficient funding" it won't be able to discharge these new duties.

That wouldn't be tragic, given that those new duties include audits to determine who has the insurance "as required by law" and collecting penalties from Americans who don't. Companies that don't sponsor health plans will also be punished. This crackdown will "involve nearly every division and function of the IRS," Ms. Olson reports.

Well, well. Republicans argued during the health debate that the IRS would have to hire hundreds of new agents and staff to enforce ObamaCare. They were brushed off by Democrats and the press corps as if they believed the President was born on the moon. The IRS says it hasn't figured out how much extra money and manpower it will need but admits that both numbers are greater than zero.

Ms. Olson also exposed a damaging provision that she estimates will hit some 30 million sole proprietorships and subchapter S corporations, two million farms and one million charities and other tax-exempt organizations. Prior to ObamaCare, businesses only had to tell the IRS the value of services they purchase. But starting in 2013 they will also have to report the value of goods they buy from a single vendor that total more than $600 annually—including office supplies and the like.

Democrats snuck in this obligation to narrow the mythical "tax gap" of unreported business income, but Ms. Olson says that the tracking costs for small businesses will be "disproportionate as compared with any resulting improvement in tax compliance." Job creation, here we come . . . at least for the accountants who will attempt to comply with a vast new 1099 reporting burden.

Meanwhile, the IRS will be inundated with useless information, because without a huge upgrade its information systems won't be able to manage and track the nanodetails.

In a Monday letter, even Democratic Senators Mark Begich (Alaska), Ben Nelson (Nebraska), Jeanne Shaheen (New Hampshire) and Evan Bayh (Indiana) denounce this new "burden" on small businesses and insist that the IRS use its discretion to find "better ways to structure this reporting requirement." In other words, they want regulators to fix one problem among many that all four Senators created by voting for ObamaCare.

We never thought anyone would be nostalgic for the tax system of a few months ago, but post-ObamaCare, here we are.