The Revenue Act of 1978 directed the IRS to bring in outside experts to take a look at--and attempt to simplify--individual income tax forms and instructions.
In September 1979, the IRS awarded a study contract to a group headed by Siegel and Gale, specialists in the simplification of legal documents.
Also included in the group were an accounting firm (Deloitte, Haskins and Sells), behavioral research scientists (Yankelovich, Skelly and White) and a "readability" consultant (J&F, Inc.).
Following their initial studies, the team suggested the addition of a third ''standard'' tax form, essentially a hybrid to fit between the two present forms.
It would be less complex than the long form, 1040, but still permit a taxpayer to itemize deductions and report some kinds of income not accommodated on the short form, 1040A.
The group also suggested that the instruction booklets be broken down into a number of different categories. By selecting one of nine different booklets appropriate to one's filing status and income group, each taxpayer would get only those instructions he or she needs, and would not have to wade through a mass of irrelevant material to find the pertinent instructions.
In addition, design and language changes were recommended to lower the reading level and make the forms and instructions easier to understand and follow.
Testing of the various proposals using small groups of people working with hypothetical data has already started. Control tests on the current forms, using similar groups and similar data, will provide comparisons of effectiveness.
It will be some time next year at the earliest before any testing with actual data is attempted--and even then, of course, the results could be negative.
Don't look for any major improvements in the situation. It's nice to know that the IRS is looking for ways to ease the tax-reporting burden.
In my opinion, however, the problem does not lie with the IRS form-designers or instruction-writers, but rather with the complexity of the tax laws enacted by Congress.
Just think of what the June 10 effective date for the 20 percent capital gains tax ceiling will do to the 1981 Schedule D. I just don't believe anyone could design a simple, easy-to-understand route through the labyrinth of the federal tax regulations.
Question: Investment recommendations often seem to depend on one's tax bracket; I've computed my tax percentage several ways and never seem to get a reasonable answer. How can I determine my tax bracket?
Answer: Let's start by defining what we mean by ''tax bracket.'' When we talk about the tax impact of various investment strategies, we're not referring to the percentage of your income that goes to Uncle Sam.
Instead, we really mean ''marginal tax bracket''--the tax rate at which the top part of your income is taxed.
If you moved investment capital from, say, a corporate bond (taxable) to a municipal bond (tax-free), the tax savings would be the amount of annual interest on the corporate bond multiplied by the marginal tax bracket.
That's because the bond interest comes off the top--the part that is taxed at the top rate--without disturbing the tax structure applied to all the rest of your income.
Take out the file copy of your 1980 federal tax return. If it includes a Schedule TC, find the figure on line 3 labeled ''Taxable income.''
If your 1980 tax came out of one of the tax tables, you won't find a Schedule TC. To get the comparable ''taxable income,'' start with the total number of personal and dependent exemptions you claimed (line 7 of Form 1040, line 6 on the 1040A).
Multiply that number by $1,000, then subtract the answer from the amount on line 34 of Form 1040 or line 11 of Form 1040A to arrive at your taxable income.
Now go to the proper tax rate schedule for your filing status: Schedule X for a single taxpayer, Y for a joint return (or a qualifying widow or widower) or Z if you filed as head of a household. Do not use the tax tables.
Next find the line on that schedule in which your taxable income fits; that is, where it falls between the dollar amounts in the first and second columns of the schedule.
Then read across on that line to the third column, where there is a dollar value plus a percent rate. That percent is your marginal tax bracket.