IRS to Determine to What Extent
Taxpayers Are Trying to Circumvent
the Tax Reform Act of 1986

The Internal Revenue Service today said that it is conducting studies to determine how well taxpayers understand and are complying with the provisions of the Tax Reform Act of 1986.

Recognizing that the '86 Act represents the most comprehensive change to the Federal tax system in a quarter century and contained changes affecting almost every taxpayer, the IRS will use the studies to assist taxpayers to better understand the new laws and help determine to what extent taxpayers are trying to circumvent various provisions of the new law.

The IRS is beginning the studies with examinations nationwide of several thousand 1987 Form 1040 returns with passive losses, rental losses, investment interest expense that might exceed the limitations, or miscellaneous itemized deductions not subjected to the two percent limitation.

If studies show that taxpayers are not complying with these provisions of the new law the IRS may continue examining 1988 returns in these areas. Information from these studies may also be used to refine IRS tax forms and publications.

The IRS said that it is also reviewing 1988 returns currently being filed to identify additional compliance issues. Some of the new issues identified so far include:

• exceeding the limitations on depreciation of automobiles,
• deduction of personal interest on Schedule C or Schedule F to avoid the 40% limitation, and
• misclassification of meals and entertainment expenses to avoid the 80% limitation.

Taxpayers can get Publication 553, Highlights of 1988 Tax Changes, for information on tax law changes that apply to 1988 returns. This publication as well as other publications that explain Tax Reform Act changes can be obtained free of charge from the IRS by calling toll-free 1-800-424-FORM (3676).

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