TaxProf Blog

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

Monday, September 23, 2013

Osofsky Presents Beyond 'Worst-First' Enforcement Today at Loyola-L.A.

Osofsky 2Leigh Osofsky (Miami) presents Beyond "Worst-First" Enforcement, Toward Better First Solutions at Loyola-L.A. today as part of its Tax Policy Colloquium Series:

When enforcement resources are limited, how should the scarce enforcement resources be allocated to maximize compliance with the law? The answer to this question is crucial in determining to what extent the law on the books translates to the law in practice. A dominant school of thought in the tax literature regarding the allocation of scarce enforcement resources suggests that they should be allocated based on a “worst-first” method, whereby the individuals likely to be most noncompliant are targeted. However, “worst-first” methods suffer some underappreciated weaknesses. While “worst-first” methods can encourage all individuals to increase compliance so as not to be deemed the “worst,” they can also provide cover to engage in noncompliance that is perceived moderate for the relevant population. This dynamic can become most problematic in highly noncompliant populations. In such populations, existing, high levels of noncompliance, and underlying, structural causes of the high noncompliance can serve as a means of coordinating on mutual, high noncompliance. Moreover, on top of potential, operational difficulties, “worst-first” theories do not provide a comprehensive explanation for the group and project-based enforcement practices that are found in a number of actual enforcement settings. In response to these deficits in existing theory, I draw on work from across different disciplines to develop a new layer of analysis regarding the allocation of scarce tax enforcement resources. I suggest that, under certain conditions, deterrence can be enhanced by allocating scarce enforcement resources among a low-compliance population of taxpayers through a process I call microdeterrence. After setting forth the theoretical case for microdeterrence, I examine how it might apply in the cash business tax sector, a setting that presents particular challenges for “worst-first” methods. I conclude that certain aspects of the cash business tax sector suggest potential benefits from application of microdeterrence. More fundamentally, I suggest that moving beyond the dominant focus on “worst-first” methods may help improve compliance with the tax law.

Jonathan Kalinski (Office of Chief Counsel, IRS) is the commentator.

Colloquia, Scholarship, Tax | Permalink