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Pepperdine University School of Law

Tuesday, December 18, 2012

Acevedo: The 100-Year Onslaught on the Tax Code

Arthur Acevedo (John Marshall (Chicago)), Abusive Tax Practices: The 100-Year Onslaught on the Tax Code, 17 Barry L. Rev. 179 (2012):

In 2013, the Internal Revenue Code (“Code”) will mark 100 years. Attacks on the tax policy generally, and on the Code specifically, have formed part of the income tax landscape since the enactment of the Code in 1913. For nearly 100 years, taxpayers have engaged in reasonable, and unreasonable challenges to Congress’ power to tax. Challenges range from legitimate interpretational issues, to quasi-legitimate tax shelter issues, to illegitimate tax protester issues. Taxpayer challenges are motivated by any number of reasons: a desire to equalize the perceived disparity of the income tax laws in relation to one’s particular tax position, a desire to pursue aggressive positions in the absence of explicit authority, or a misplaced belief in the illegitimacy of the Code. A number of factors combine to create an environment ripe for taxpayer challenges and for self-executing equalization by taxpayers - voluntary tax assessments, varying tax preferences, fluctuating tax policies, and ambiguous language. These factors influence a faction of taxpayers, tax protesters and aggressive tax participants, into behavior that is questionable and destructive to the tax policy goals of simplicity, fairness, efficiency and revenue sufficiency.

This paper explores the actions taken by tax protesters and aggressive tax planners, the response by Congress, and examines whether Congress has taken sufficient action to curb abusive taxpayer practices. The thesis of the paper is that Congress’ fainthearted responses to abusive taxpayer conduct is untimely, inefficient, and ineffective. Congress’ weak responses since the inception of the Code have contributed to a culture of income tax avoidance and a growing sense of exasperation by taxpayers with the income tax laws. The paper makes two proposals, one to address tax protesters, and the other to address unintended tax benefits as a result of aggressive tax planning resulting.

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A nicely prepared and documented paper. But, let's jump to the conclusion section -- the opinion of what government should do. The author wants government to have all the power while limiting opportunities and challenges by taxpayers.

He would require taxpayers to be mindreaders of Congressional intent on tax laws, which Congressmen themselves didn't understand when they passed the laws and in which they made mistakes in drafting. He would limit taxpayer rights to challenges and seriously punish failed challenges by simply having someone from the government declare them frivolous. He would register tax strategists and their clients with the IRS, which automatically says "audit me." He wants to give the IRS up to twelve years to audit selected returns! He blames the taxpayer who interprets the law one way when Congress fails to write clear and understandable law. And, he gives American taxpayers little credit for voluntary reporting and paying of taxes and misinterprets an IRS study on that.

If anything, challenges by taxpayers on the interpretation and intent of tax law have resulted in many corrections and more fairness than provided by either the strict wording or vagueness of the laws. If fact, the IRS sometimes waits to see how preparers handle certain items before it adopts regulations. Taxpayer challenges are necessary to serve as a check on government abuse against them, which comes from a government hungry for money. Taxpayer challenges are required when none of the branches of government can agree upon what's a tax and what's a fee.

There isn't enough documented abuse to require the drastic steps the author proposes. We have enough laws and restrictions without making the situation worse and making taxpayers more defenseless.

Posted by: Woody | Dec 18, 2012 12:22:41 PM