Tuesday, December 14, 2021
Bret N. Bogenschneider (Indiana University East; Google Scholar), Non-Cooperative Compliance in the Corporate Tax Audit, 48 Cap. U. L. Rev. 402 (2020):
The term “cooperative compliance” refers to a special tax incentive offered exclusively to large corporations designed to prospectively limit the scope of the tax audit. In the United States, the CAP program is usually given as the prime illustration of such a program, but the broader FIN48 “policy of restraint” also meets the definition. The IRS’ FIN48 “policy of restraint” applies automatically to all audits of public firms, thus leading to a vast reduction in corporate tax receipts via the failure to comprehensively audit the aggressive tax positions of large corporations reflected in their own accounting records. Prior justifications for “cooperative compliance” programs such as the supposed historical “command-and-control” practices for tax audits are shown to be flawed and not relevant to corporate tax audits.
The real purpose of cooperative compliance programs appears to be a type of advertisement to large corporations that tax laws will not be strictly enforced in the respective jurisdiction. The cooperative practices are thus offered as a means of international tax competition (and as a type of State Aid) for multinational firms by prospectively limiting the scope of corporate tax audits. A revised theory of the corporate tax audit is developed here based on non-cooperative audit practices.