TaxProf Blog

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

Friday, April 18, 2014

Audits as Signals

Maciej H. Kotowski (Harvard), David A. Weisbach (Chicago) & Richard J. Zeckhauser (Harvard), Audits as Signals, 81 U. Chi. L. Rev. 179 (2014):

A broad array of law enforcement strategies, from income tax to bank regulation, involve self-reporting by regulated agents and auditing of some fraction of the reports by the regulating bureau. Standard models of self-reporting strategies assume that although bureaus only have estimates of the of an agent’s type, agents know the ability of bureaus to detect their misreports. We relax this assumption, and posit that agents only have an estimate of the auditing capabilities of bureaus. Enriching the model to allow two-sided private information changes the behavior of bureaus. A bureau that is weak at auditing, may wish to mimic a bureau that is strong. Strong bureaus may be able to signal their capabilities, but at a cost. We explore the pooling, separating, and semi-separating equilibria that result, and the policy implications. Important possible outcomes are that a cap on penalties increases compliance, audit hit rates are not informative of the quality of bureau behavior, and by mimicking strong bureaus even weak bureaus can induce compliance.

Scholarship, Tax | Permalink


Licensing Tax prepares
It’s seems ludicrous that we would require plumbers, electricians and others to take courses to be licensed and not require Tax Preparers.
The home owner doesn’t face financial ruin or possible imprisonment for the Licensed contractor or electrician making a mistake but that’s exactly what the unsuspecting tax payer faces if the Tax preparer make a mistake.
The Taxpayer who has not studied the IRS code has to sign the 1040 stating what is in it is true and can face perjury charges and more if what is on that 1040 isn’t correct.
This is an upside down system.
My family and I have faced financial ruin and more do to two tax preparers .
I am now having to act ProSe in our case because of the use of the Writ Ne Exeat Republica, that cost me to loss my job and income. We were paying $6200 per month on a debt. Before our attorneys withdrew due to lack of funds to keep paying them . We had paid $55,000 to the attorneys . According to our attorneys filings to the court , We may not have owed what IRS was claiming,
So we face these problems because Tax Preparers are not trained or Licenses and help accountable.
I I have prepared an Appeal of our case to the Appellate court, I know the law and precedents are correct, but I am not sure my form is. Is there anyone out there that could donate a few hours just to read and critiques my Appeal?
I am not asking for pro bono representation but just to help us , we are flying blind.
Charles R Barrett

Posted by: Charles Barrett | Apr 18, 2014 10:48:22 AM