YOUR TAXES : TAXES CAN BE YOUR FRIEND : Buying Peace of Mind : Some people don't understand the new rules, others just want someone else to do the : worrying.

By ROBERT R. BURNS

March 5, 1989 12 AM PT

<i> Times Staff Writer </i>

Remember when tax reform and simplification got equal billing? Well, Congress seems to have left simplification on the cutting room floor.

True, the Tax Reform Act of 1986 did make things a bit less complicated by eliminating several million of the poor from the tax rolls. But during these first years of reform, it hasn’t appeared to make life any easier for those who still must file.

The IRS says the number of income tax returns done by paid preparers remained about the same--60%--before and after tax reform. “In California, it’s running pretty consistent, even with tax reform,” said Shirley Nakagawa, a public affairs specialist with the IRS.

“I don’t believe tax reform meant simplicity, it meant complexity,” said Edward Rosenson, a tax partner at the Arthur Young & Co. offices in Century City. “(Tax reform) eliminated some low-income taxpayers but did nothing to simplify the law.

“When Congress started out, that was truly one of their goals . . . but the end result was not simplification.”

David Lieberman, president of Triple Check income tax service, says that while the final forms may be simpler since tax reform, the process of getting to that point is more complicated. “To know you’ve prepared an accurate return, you’ve got to get over more hurdles than you ever did,” he said. “If you’re going to be paying tax, you should be going to somebody.”

Reform was complicated enough to convince some taxpayers that they needed a stand-in. San Diego lawyer John Malugen had done his own returns until a couple of years ago. Then, “I got too busy. . . . The changes in the tax laws made it a rather complex situation to learn the new rules and manipulate the new forms. . . . Tax reform definitely contributed to the decision to stop doing my own,” he said.

Now, however, Malugen says he may start doing his own taxes again. He said watching his accountant work through the new forms has given him the confidence to try it. “Once an accountant has done the return using the new forms and showing you how to do it, it’s a lot easier to do it in the future.”

Making things more complex for both tax preparers and payers are the constant changes in the tax code. If Congress really wanted to simplify the tax code, Rosenson said, it wouldn’t change the tax laws for five years but would only raise or decrease the income tax rate.

“People on their own are having a hard time digesting the tax laws,” said Rosenson, who in addition to being a tax partner is director of personal financial planning services for the Los Angeles offices of Arthur Young. “I think the general population has the conception that the tax laws are getting more complicated, and they seek professional help.”

“I actually think the biggest injustice is not the tax system itself but that taxes are not uniformly applied because of the filing system,” said Lieberman of Triple Check, which has 300 offices in 39 states. “Even those that go to professional preparers are not having the laws uniformly applied.”

Without real regulation and testing of tax preparers, Lieberman said, there is no way to make sure they are fully qualified.

Lieberman believes that no one should be doing their own returns. “It is impossible for the average person to know if they’ve gotten all the advantages that they should,” he said. “The average taxpayer would be better served with professional guidance. . . . (Tax reform) definitely made it more complicated.”

He said that in addition to doing returns, a good preparer also offers advice on tax planning, such as information on IRAs.

Obviously, those filing the super short 1040EZ form can probably do that on their own. And many tax professionals say even a standard 1040 is simple enough for most people.

Arthur Young’s Rosenson says if people start early enough in the preparation process and have the patience to thoroughly read the instructions, “the average person should be capable of doing a 1040.” He also recommends a tax self-help book for those doing their own returns.

“It shouldn’t be a problem if they work it line by line instead of skipping around the form,” said Nakagawa of the IRS. The IRS also provides phone assistance and offers free tax preparation help for low-income taxpayers and the elderly. And assistance is available in several languages. Call (800) 424-1040 for more information.

When should someone seek professional help?

People who have bought or sold a residence, Rosenson said, should probably talk to a professional. Other things that can complicate filing and require the help of a paid preparer: refinancing a residence; being in the alternative minimum tax category and having passive income or loss activity, such as with rental property.

The main consideration in choosing a professional preparer is availability.

“A critical factor is that a tax preparation service should be available all year long,” Rosenson said. If a return is selected for an audit, the preparer should be around to assist. “I wouldn’t want to see people going into a mom-and-pop store only open three months out of the year.”

Of course, many people just would rather have someone else do the worrying about income taxes. It does only come once a year, after all.

“I think a lot of people just have an aversion to doing anything with income taxes,” Rosenson said.

A lot of people will tell you it is worth it to go to a professional preparer, he said. “The presumption is that the preparer knows the laws and that the individual might have missed some deductions.

“To use the vernacular, people ‘freak out’ about taxes and go seek professional help and that buys them peace of mind.”