Tuesday, December 3, 2019
Joshua Blank (UC-Irvine) presents Progressive Tax Procedure (with Ari Glogower (Ohio State)) at NYU today as part of its Tax Policy Colloquium Series hosted by Lily Batchelder and Daniel Shaviro:
Abusive tax avoidance and tax evasion by high-income and wealthy taxpayers pose unique threats to the tax system. These strategies undermine the tax system’s progressive features and distort its distributional burdens. Responses to this challenge generally fall within two categories: calls to increase IRS enforcement and proposals to target the specific strategies that enable tax avoidance and evasion by these taxpayers. For example, taxpayers who engage in certain tax shelter transactions or hold assets abroad face additional compliance obligations and potential tax penalties.
This Article presents the case for “progressive tax procedure” — means-based adjustments to the tax procedure rules as they apply to high-income and wealthy taxpayers. In contrast to the activity-based responses in current law, progressive tax procedure would tailor rules to the characteristics of the actors rather than their activities. Instead of focusing exclusively on specific potentially abusive activities, such as “reportable transactions,” progressive tax procedure would adjust tax procedure rules based on the taxpayer’s income or net assets. For example, a high-income taxpayer would face higher tax penalty rates or longer periods where the IRS could assess tax deficiencies than other taxpayers.
Progressive tax procedure could improve upon the current system of activity-based responses to more effectively deter noncompliance by high-end taxpayers and counter the resource mismatch between these taxpayers and the IRS. Most critically, it could narrow the gap between the substantive tax law’s prescriptions and the actual tax paid by high-end taxpayers. While progressive tax procedure would be especially desirable when policymakers pursue progressive tax reforms, it would be beneficial regardless of the progressivity of the underlying substantive tax law.
After developing the normative case for progressive tax procedure, the Article illustrates examples of means-based adjustments in three specific areas: accuracy-related tax penalties; the reasonable cause defense; and the statute of limitations. These applications illuminate the basic design choices in implementing progressive tax procedure, including the types of rules that should be adjusted and the methods for designing these adjustments.