Tuesday, December 18, 2012
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.