Osofsky: Getting Realistic About Responsive Tax Administration

Leigh Osofsky (Miami), Getting Realistic About Responsive Tax Administration, 66 Tax L. Rev. ___ (2012):

Responsive Regulation is a popular regulatory theory across a broad array of disciplines. The influence of Responsive Regulation on tax administration has greatly increased over the past decade, producing a theory of “Responsive Tax Administration.” This work has proven powerful in the United States, causing scholars to advocate remodeling the tax compliance system under a Responsive Tax Administration framework. Extensive, scholarly focus on related areas of tax compliance research, such as reciprocity and service, has supplemented these calls for reform. The Internal Revenue Service (“Service”) has remodeled the large business tax compliance sphere under the influence of Responsive Tax Administration and the related research. The large business tax sphere has a crucial impact on tax revenues, making this remodeling especially significant during a time of fiscal crisis. Despite this crucial remodeling, there has been little critical analysis of this application of Responsive Tax Administration to the United States large business sector. This Article begins the overdue task of critiquing the application of Responsive Tax Administration to the United States large business sector by using the case-study of the Compliance Assurance Process (“CAP”). CAP is a revolutionary, pre-audit initiative that the Service has signaled may be the way of the future for large business tax administration. CAP finds its academic support in Responsive Tax Administration and is consistent with part, though, importantly, not all, of Responsive Tax Administration theory. This Article argues that CAP problematically leverages faith in the perceived transformative powers of Responsive Tax Administration programs to reduce accountability at the very time when increased accountability is needed, fails to use penalties meaningfully, potentially reducing transparency and resulting in a “test drive” effect for taxpayers that may undermine sound tax administration, and creates self-selection bias problems. The Article argues that these problems result from both a failure to appreciate the inherent weaknesses of Responsive Tax Administration and the related research, and the unfaithful application of the theory into practice. The Article suggests potential solutions to each of these problems and, more generally, serves as a first step in a broader critique of the application of Responsive Tax Administration in the United States. While the innovative nature of Responsive Tax Administration theory has much to offer, this Article counsels that we need to get more realistic about its potential limitations.