Paul L. Caron

Wednesday, December 16, 2020

Yin: Repairing The Tax Privacy Rules

George K. Yin (Virginia), Repairing the Tax Privacy Rules, 169 Tax Notes Fed. 1485 (Nov. 30, 2020):

Tax Notes Federal (2020)For almost four years, the nation has experienced numerous governmental deviations from rules and norms that have exposed gaps or weaknesses in many areas of law. This article describes needed changes in three tax privacy areas: access and disclosure of presidential tax information; civil enforcement of congressional subpoenas; and confidentiality protections for tax return information obtained by subpoena.

I end with the familiar words of a 17th century French official who said:
The art of taxation consists in so plucking the goose as to procure the largest quantity of feathers with the least possible amount of hissing.

We know that the main reason for hissing is the extraction of money by the government from the taxpayer. Nothing we can do about that — that’s part of the essential cost of taxation. What we can do — and what countless tax policy proposals have suggested over the years — is to minimize the collateral costs of taxation, such as the time and effort taxpayers must devote to comply with the law. In other words, try to make the plucking of feathers as painless as possible.

Perhaps we should think of tax privacy in these terms. Some loss of privacy is an essential cost of taxation because taxpayers must reveal some private information to the IRS to determine how much tax is due. But how much more privacy must be given up? Who else other than the IRS needs to know the information? Would any further disclosures merely be collateral costs that ought in theory to be minimized? Like wasting a taxpayer’s time and effort, governments should be wary of asking taxpayers to surrender too much privacy or else the hissing may one day turn to spitting, and then to biting, and then maybe to something worse.

History shows the nation has learned this lesson pretty well. Once the return publicity feature of the Civil War income tax contributed to its demise, every subsequent income tax — enacted in 1894, 1909, and the modern income tax in 1913 — has included rules to prevent public disclosures. A small 1924 exception allowing publicity of taxpayer’s names and tax liabilities, widely exploited by the newspapers, was promptly repealed in 1926 when the sound of hissing became deafening. Finally, in 1976, following a period of increasing publicity of tax information achieved indirectly — presidents had released it to agencies and nontax congressional committees and they had made some of it public — Congress changed the law to prevent that practice.

With appropriate protections, tax return information should be available to assist legitimate congressional and grand jury investigations. But any disclosures to the public should be made with great care and only in very limited circumstances.

Scholarship, Tax, Tax Analysts, Tax Scholarship | Permalink