TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, January 28, 2013

NY Times: Italians Have a New Tool to Unearth Tax Cheats

New York Times:  Italians Have a New Tool to Unearth Tax Cheats:

Despite the government’s best efforts, tax evasion remains something of a pastime in Italy, where, famously, more than a few of the Ferrari-driving set claim impoverishment when it comes to declaring their incomes.

So this month, not without controversy, the National Revenue Agency decided to try a new tack. Rather than attempting to ferret out how much suspected tax cheats earn, the agency began trying to infer it from how much they spend.

The new tool, known as the “redditometro,” or income measurer, aims to minimize the wiggle room for evasion by examining a taxpayer’s expenditures in dozens of categories, like household costs, car ownership, vacations, gym subscriptions, cellphone usage and clothing. If the taxpayer’s spending appears to be more than 20 percent greater than the income he or she has declared, the agency will ask for an explanation.  

(Hat Tip: Mike Talbert.)

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This "new" method has its roots in the old "Imposta di Famiglia" by which the government sent an inspector to your residence to see how you lived and calculated an ad valorem "property tax" on "apparent" wealth. This is the reason why many (if not most) Italian homes have a simple first floor "visitors'" sitting room, sparsely furnished with no (or very worn) carpets and old non-descript furnishings, while upstairs there would be beautiful parqueting, carpets, marble and antiques, all out of sight of the inspectors. Thus, ostensibly keeping up with the "Jones's" (or, if you prefer, the Berlusconi's) carried a stiff tax penalty, while the rich with nothing to prove to the neighbors, paid a pittnce. With the redditrometri, the games continue, ad infinitum.

Posted by: Al Golbert | Jan 28, 2013 3:13:10 PM

IRS auditors have been doing this for decades. About 20 years ago they put the old wine in new bottles and called it "economic reality."

Posted by: Bob | Jan 29, 2013 7:44:03 AM