SAN FRANCISCO (MarketWatch) — The most pressing and serious problem facing U.S. taxpayers is the tax code’s sheer complexity, which forces individual filers and businesses to spend an estimated 6.1 billion hours every year complying with tax law, according to the latest report from the National Taxpayer Advocate, presented to Congress Wednesday.

If you hired workers to do all the work of complying with the tax code, it would require more than 3 million full-time workers, “making ‘tax compliance’ one of the largest industries in the U.S.,” according to the report by Nina Olson.

Olson, as the National Taxpayer Advocate, heads the Taxpayer Advocate Service or TAS, a government agency that monitors the IRS and helps individual taxpayers resolve problems with the IRS. Olson’s office is required to present annual reports to Congress detailing the top 20 problems facing taxpayers.

With a tax code so long no one even knows for sure how long it is (TAS estimates 3.8 million words, in 11,045 single-spaced pages), it’s no wonder that about 60% of individual filers pay a professional tax preparer, and another 29% buy tax software, according to the report. The annual cost of doing taxes, for a taxpayer who earns the median income, was $258 in 2007.

The complexity of the tax code is a problem for the IRS, too, the report said.

“Despite the fact that about 90% of taxpayers rely on preparers or tax-software packages, the IRS received 110 million calls in each of the last two fiscal years,” the report said. “That is a staggering number, and not surprisingly, the IRS was unable to answer more than 25% of them.”

Time to fix the tax code

The solution is tax reform, Olson said, to eradicate myriad tax credits and deductions while at the same time reducing income-tax rates. Reform should be revenue neutral; ideally, taxpayers would experience solely a simpler tax code, without a change in their tax bill, she said.

“If structural tax reform and revenue levels are considered together as part of a package, we are concerned that the debate over revenue levels could overshadow and derail meaningful tax reform,” the report said. “We suggest that Congress consider addressing these issues separately.

“First, Congress could enact structural tax reform on a revenue-neutral basis. Second, Congress could decide on appropriate revenue levels and adjust the tax rates as it deems appropriate.”

Also, Olson said the government should send a “taxpayer receipt” to all taxpayers showing a breakdown of how their tax dollars were spent.

“Better public awareness of the connection between taxes and government spending may improve civic morale, improve tax compliance, and make more productive the national dialogue over looming fiscal policy choices,” the report said.

Another major problem Olson cites: The IRS is increasingly taking on a role as benefit administrator, rather than tax collector, including doling out the home-buyer tax credit and the Making Work Pay credit and soon, major pieces of the health-care reform law. See the full report on the TAS site.

Got your own ideas for tax reform? The Taxpayer Advocate wants to hear them. Olson’s office is in the process of creating an online suggestion box on its site.

See more MarketWatch tax coverage.