Wednesday, June 12, 2019
Daniel J. Hemel (Chicago), Audits, Markets, and Patents, 87 U. Chi. L. Rev. Online 78 (2019):
The valuation of illiquid assets is a challenge across many areas of law, from tax to torts to takings to intellectual property. The most common approaches to the problem are state assessment and self-assessment. In a state assessment system, some actor or body employed or deputized by the government — such as an assessor, a jury, or a judge — estimates the value of the asset in question, and that state assessment becomes binding (generally after an appeals process has run its course). Examples of state assessment include local property tax valuations, jury awards in tort cases, court-ordered compensation for takings, and the process for patent and copyright holders to obtain compensation from the federal government when it uses their intellectual property without a license. In a self-assessment system, asset owners or taxpayers report their own valuations of the item in question.
Rather than relying on scout’s honor, authorities generally subject those self-assessed valuations to random or quasi-random audits and then impose penalties if the self-assessment appears to be self-serving. Examples of self-assessment abound in the federal tax context, including the valuation of in-kind income, noncash charitable contributions, goods and services transferred among affiliated business entities, and gifts and inheritances subject to wealth transfer taxes.