Thursday, April 10, 2014
Joshua D. Blank (NYU) presented Reconsidering Corporate Tax Privacy, 11 N.Y.U. J. L. & Bus. ___ (2014), at Harvard yesterday as part of its Current Issues in Tax Law, Policy, and Practice Seminar hosted by Daniel Halperin and Stephen Shay:
For over a century, politicians, government officials and scholars in the United States have debated whether corporate tax returns, which are currently subject to broad tax privacy rules, should be made publicly accessible. Throughout this age-old debate, participants have speculated about how corporate managers and the IRS might behave differently if they knew that the public could observe corporations’ tax returns and how investors and the general public would respond if they had access to this information. There is, however, another, unexplored perspective: how could seeing other corporations’ tax returns affect how corporate managers engage in tax planning and tax return preparation for their own corporations?
In prior work [In Defense of Individual Tax Privacy, 61 Emory L.J. 265 (2011)], I have argued that tax privacy enables the government to publicize specific examples of its tax enforcement strengths without exposing specific examples of its tax enforcement weaknesses, and that this “strategic publicity” function of tax privacy encourages individual voluntary tax compliance. In this Article, I consider whether tax privacy provides the government with similar strategic advantages in the context of corporate taxpayers. While significant distinctions between corporate and individual taxpayers cast doubt on the government’s ability to utilize tax privacy to inflate corporate tax managers’ perceptions of the risk of IRS detection and enforcement, I argue that the inability of corporate tax managers to observe certain tax return information of their peer firms nonetheless provides the government with strategic advantages that can limit aggressive tax planning and reporting behavior by corporate taxpayers. Yet at the same time, public access to corporate tax return information would enrich public awareness and debate of corporate tax reform issues, which could ultimately lead legislators to act.
The result of this analysis is a set of guidelines that will enable policymakers to consider proposals to make corporate tax return information public without ignoring the strategic function of corporate tax privacy. In contrast to the all-or-nothing proposals that have resulted from prior debates, I conclude that a substantial amount of corporate tax return information, including significant portions of corporate tax returns themselves, should be publicly accessible, while other information, primarily documents related to IRS audits and investigations and certain forms that disclose the particulars of specific transactions and tax positions, should remain private.