Quick Overview

  • The Tax Foundation notes that tax compliance costs for large corporations surged 32% from 2017 to 2023, driven by increasingly complex international tax rules, the corporate alternative minimum tax, and changes brought by the Tax Cuts and Jobs Act of 2017.
  • In a survey of 21 companies, the Tax Foundation found that multinational corporations spent an average of $25.6 million in 2022 or 2023 to comply with income tax rules. Companies estimated that, on average, 43% of their federal income tax compliance costs stemmed from rules related to foreign-source income.
  • The Tax Foundation said these companies increased their spending on tax compliance by an average of 29% from 2017 to 2023. The report states: "Although the sample size is small and limited to relatively large companies, the evidence suggests economies of scale in tax compliance costs, meaning smaller firms bear a disproportionate burden and disadvantage due to tax complexity."

Deep Insights

Sporadic attempts to simplify the U.S. tax code have failed to reverse the trend of increasing complexity driven by decades of regulations and legislative changes.

According to a paper released by the National Bureau of Economic Research in December 2023, the U.S. Internal Revenue Code has expanded by about 40% over the past three decades, growing from 3.1 million words in 1994 to 4.3 million words in 2021. The study compared tax codes of six countries, with the U.S. being the largest and most complex.

The researchers said: "Filing costs and complexity have been growing," noting that most taxpayers "would be willing to pay for a simpler tax system."

Citing estimates from the IRS and the Office of Information and Regulatory Affairs, the Tax Foundation said U.S. taxpayers will spend more than 7.9 billion hours this year complying with tax laws, with annual compliance costs estimated at $413 billion (based on average hourly compensation).

The Tax Foundation also cited IRS/OIRA estimates indicating that businesses pay nearly $119 billion to complete income tax returns, plus an additional $70 billion annually for filing quarterly tax forms and depreciation schedules.

A Deloitte survey of over 1,000 tax and finance executives at large corporations found that multinational and other businesses are facing pressure to "address growing demands for tax transparency."

Deloitte said: "Effectively executing a tax transparency strategy will be a key priority going forward, and multinationals are likely to face challenges in balancing compliance and business needs."

Will McBride, vice president of federal tax policy at the Tax Foundation (a Washington-based think tank) and author of the survey report, said that rhetoric from candidates in the current election season suggests Washington may reduce tax compliance costs in the coming years.

He said Thursday: "Business tax compliance costs may decline in some areas, and there remains a small chance for fundamental reform to simplify corporate taxes," while noting that "candidates' statements on tax plans have been vague."

McBride cited as an example that lawmakers from both parties agree on reversing the R&D expense amortization requirement that began in 2022, restoring expensing treatment.

In an email responding to questions, he said the R&D amortization requirement "is viewed by many companies in the survey as a significant driver of compliance costs."

Companies surveyed by the Tax Foundation filed an average of 10,567 pages of federal tax returns, and most said they also completed multiple other filings over the past year, with an average total of 42 submissions.

The Tax Foundation said these companies also filed an average of 554 state income tax returns, 170 local tax returns, and 764 foreign income tax returns over the past year.

The Tax Foundation stated: "Every company in the sample reported that tax complexity has increased since 2017."