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Wednesday, June 29, 2011

Tax Law Access in the 21st Century - Guest Post

I am pleased to publish a guest post from Ari Hershowitz of Tabulaw who also blogs at Ari is focused on finding and making useful, free legal materials from the government that can be combined with technology to make legal research far more efficient and useful and allow for sharing of information among practitioners. You can see a beta of this for federal tax purposes at and a good example of what is involved in one of Ari's recent blog posts - "Open Source the Tax Code" (6/17/11).

This is a great example of how technology can and should modernize tax practice. Thanks, Ari. Read on for his post ...

I am inspired by Professor Annette Nellen's writings on innovative tax policy and practice, and by the vibrant community she has created around these issues on It is a privilege for me to be asked to share my thoughts on the potential role of technology in these efforts, and I am grateful for her advice and insights for this article.

At, we are experimenting with technologies to improve navigation of tax law. I welcome your feedback, thoughts and participation, and hope that our work can support the work of the "tax innovation community" on
The Internal Revenue Code (IRC) is more than half a million lines long: 520,226 lines to be precise, made up of 3,939,919 words and 28,330,811 characters. If you don't believe me, you can count them yourself.*

This article sets out a proposal for textual and technological changes to simplify understanding and use of the Tax Code. These changes are meant as a foundation--and not a substitute--for the important policy and legal decisions that most tax experts mean when they discuss simplifying the code.

Layers of Complexity

The IRC is not only long, it is complex, as readers of well know. This, for example, is a map of all U.S. Code references to and from 26 U.S.C. 501. Add to these references the related federal regulations, IRS rulings, guidance and other interpretive materials, and it's no wonder IRS Commissioner Shulman gets his taxes done by a professional tax preparer. The Hill quoted him last year as saying, "I've used [a tax preparer] for years. I find it convenient. I find the tax code complex so I use a preparer." (quoting an interview on C-Span).

President Obama made simplifying the Tax Code a centerpiece of his State of the Union Address, saying, "It makes no sense, and it has to change."

But the President couldn't have meant removing all of the complexity in the Tax Code. Much of that complexity arises from the policy goals and myriad transactions that it is designed to address; by analogy, no one would want an airplane design to be simple at the expense of being able to fly in rainy weather. I'll call this essential complexity the "transactional" layer.

Other complexity arises from redundant or overly circuitous paths to reach a policy goal that could be implemented more simply, without loopholes, exemptions, extensions, etc. This is where I suspect President Obama's State of the Union statements were aimed, to the extent he expects to be able to move tax reform legislation. I'll call this the "implementation" layer.

A third, underlying, layer of complexity comes from the legislative drafting process itself. I'll call this the "textual" layer.

We shouldn't underestimate the challenges of simplifying the tax code for any of these three layers. However, I believe that there are uncontroversial technical reforms in the textual layer can greatly clarify the policy issues at stake in the other two layers. There is also a great deal that the private sector can do to improve the search, visual display, and organization of existing tax law. As a whole, this "text reform" can be seen as cleaning up the map or getting better GPS software before embarking on the journey of broader tax reform. A new map can't decide where to go, but it can help you get there.

Below, I propose 5 steps for this map to improve navigation, accessibility and clarity of tax law.

Text Reform: 5 Steps

1. Use plain language
The first proposal is not technological, but is fundamental. To the extent possible, tax legislation should be written in plain English. The Plain Writing Act of 2010 nudges Agencies in that direction. When it passed, John Klotsche, former Chairman of Baker and McKenzie's Executive Committee, identified the potential significance of this Act, if the IRS takes up the challenge to use plain language in forms, guidance and other (non-regulatory**) communications. Your thoughts: has the Agency adequately done so? Klotsche suggested that Congress should use plain language for tax law, too, and I agree.
Using short simple words is part of plain language, but it is not enough. Consistency is also important. For example, as Professor Nellen points out in this post, the word "small" (business, seller, employer) is defined in a variety of ways throughout tax law and regulations.
2. Accurate and instant updating of tax law

Changes to tax law and rulings should be done in electronic formats that can be automatically updated with the changes. This will require adding "hooks" to existing tax law and clearly identifying those hooks when making changes.

Such a system has been experimentally implemented for regulations, so that the electronic version of the Code of Federal Regulations (e-CFR) is now updated within two days of any Federal Register notice. This system was put in place through coordination of the National Archives and Records Administration's Office of the Federal Register, in conjunction with the Government Printing Office (GPO). The technical know-how exists to do the same for legislation, though it may require some changes to the legislative drafting process, and cooperation among institutions.

3. Redlining legislative and regulatory proposals

Circular230 w. edits, courtesy Annette Nellen

Hand-in-hand with automatic updating, is a process to produce automatic redlining of legislative proposals and regulations. Again, this will require some technical changes behind the scenes, but imagine the improvements in accountability and clarity when proposed changes are displayed visually, and when you can navigate from one change to the next, as easily as you can "Find" a phrase in a Word document.

4. Visual timeline of legislative history
Once the first steps are in place, it becomes possible to create a visual history of legislation, regulations and other sources of law; essentially to get a "snapshot" in time of the state of the law. True, this is not fundamentally new, since this is legislative history research is all about. But our visual system is particularly adept at identifying changes and this is one more element in clarifying the state and trajectory of the law.

5. Streamline, organize and codify IRS Rulings and Guidance
The IRS can use subject-matter tags and other categorization tools to better classify the subject matter of its official rulings and guidance. In the particular case of letter rulings, the process for submission and response can be further formalized to allow relevant legal determinations to be more easily extracted, categorized and read alongside the relevant supporting precedent.

Practitioners can also tag, comment and provide analysis of tax law sources, a process we hope to facilitate at

Any technology must be adopted alongside an equal dose of judgment, and progress toward these five steps cannot replace the good judgment of a tax professional. At the same time, using plain language and integrating better structure into tax law can make the law simpler to navigate, understand and follow.

Ultimately, this should also result in more accurate tax compliance and wider access to free and useful tax research tools. These tools should also help maintain transparency into the future: changes proposed by Congress, Treasury and the IRS, will be easier to trace, through redlining or the equivalent, leading to more informed participation and deliberation. This process, in turn, should increase the chances that any changes adopted are truly warranted and easy to understand.

*Really, you can count the lines in the IRC text. Just download the text version of the Code and, if you have a Macintosh or other Linux-based computer, type this (from the command line):
        $ wc Title_26.txt

**Section 3 of the Act specifically excludes regulations.

By Ari Hershowitz,


Anonymous said...

Computer software is similar to the tax code in many respects: written by humans, easy to create, easy to break, driven by good intentions and by special interests, and tending to grow and become increasingly complex. Today, even a "simple" laser printer may contain more than a million lines of code (LOC). Large systems, such as airline reservation systems, database management systems, flight tracking systems, contain much more code. It is often impossible, unpractical, too expensive, or too risky to completely rewrite and replace large software systems. This usually results in what is called the "Lava Flow Pattern", where layer upon layer of software changes are added on top of the original software. Does this sound familiar to you tax practitioners?

Often the people who maintain the code are unaware of, lose sight of, or disagree with the motivation and intent of the original authors, sometimes because of vague, incomplete, or missing documentation. This requires "software archaelogy" by new developers, but not everyone is willing to spend the time digging into the code.

Often the design and behavior of the existing code is not fully understood, and the implementation
of a "simple change" results in surprising side-effects or breaks the code. Sometimes the broken software appears to be working correctly, but the defects enable surreptitious misuse, e.g. security breaches.

Testing of software is difficult and not totally reliable. Review of software by expert practitioners is often the only way to find some types of defects, but this is difficult with primitive tools.

Software is essentially textual in nature, with lots of interdependencies, much like the tax code. Improvements in computer languages have made software easier to develop, but often result in new types of defects while eliminating other classes of defects.

An obvious common problem is that it is difficult to learn and understand both large bodies of software code and the tax code. Tools have been developed over decades in the software industry, starting with simple cross-reference tools to help identify interdependencies in the code. The software tools industry has grown, and today there are graphical tools which enable perusal of the code, and different views, from high-level structural views to views of details with highlighted information. In the past, people might spend months or years learning about one large piece of software, and become recognized as experts. Today, with state-of-the-art tools, it is possible for competent engineers to become experts much more quickly, and it makes the maintenance of the code much more efficient and less risky.

In the past decade, these tools have helped enable the open source movement, which allows collaboration by strangers, and has produced lots of excellent new software.

As someone who has spent 40 years working as a software engineer, it strikes me that the tools for understanding and analysis of the tax code are about where the software industry was 40 years ago. It troubles me that the tax code, which affects all of us directly or indirectly, is in this state.

That is, until now. Ari Hershowitz and his colleagues at Tabulaw are developing tools similar to some software visualization tools; you can see some of them on But it's not just about tools; the representation of the tax code also needs to change from "just text" to a form that captures more information. Tabulaw's efforts to introduce structural metadata to California's laws, as well as the "open sourcing" of tax code, are remarkable steps in the right direction. I truly hope that these ideas are embraced by a wider audience and that your tools are adopted quickly; we would all benefit.

Disclaimer: I'm self-employed, and I have no financial or other interest in Tabulaw, nor do I know any of its employees.

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