Source: https://environment.elibrary.imf.org/view/IMF071/06711-9781557755872/06711-9781557755872/ch04.xml?rskey=IYMVpQ&result=2&highlight=true
Timestamp: 2020-01-25 23:00:40
Document Index: 105548862

Matched Legal Cases: ['§ 7', '§ 6001', '§ 86', '§101', '§ 551', '§ 166', '§ 6321', '§ 281', '§161', '§ 7', '§ 25', '§ 8', '§ 831', '§ 6', '§ 19', '§ 551', '§ 553', '§ 601', '§ 601', '§ 601', '§ 601', '§ 149', '§ 25', '§ 49', '§ 6041', '§ 6001', '§ 230', '§ 140', '§ 7608', '§ 20', '§ 231', '§ 7609', '§ 231', '§ 7122', '§ 301', '§ 31', '§ 32', '§ 7441', '§ 7452', '§ 7482', '§ 231', '§ 552', '§ 555', '§ 6321', '§ 61', '§ 281', '§ 61', '§ 298', '§ 6335', '§ 309', '§ 6159', '§ 5', 'art. 1167', '§ 548', '§ 7122', '§ 7811', '§ 233', '§ 6601', '§ 6621', '§ 6621', '§ 30', '§ 6103', '§ 122', '§ 6323', '§ 6331', '§ 7605', '§ 7521', '§ 7458', '§ 34', '§ 6501', '§ 36', '§ 6501', '§ 6651', 'art. 444', '§ 6651', '§ 93', 'art. 414', 'art. 1727', 'art. 13', 'art. 163', '§ 7201', '§ 7201', '§ 6103', '§ 6651', 'art. 444', '§ 152', '§ 6651', '§ 7201', '§ 370', '§ 7203', 'art. 1725', '§ 507', '§ 3402', '§ 222', '§ 6672', '§ 7201', '§ 7204', '§ 7214', '§ 7214', '§ 7216']

Interestingly enough, Freud described the borderline between psychosis and neurosis as when the mind acts like a bureaucracy. Sigmund Freud, An Outline of Psychoanalysis 48 (1911).
For a tax administration, the opposite of functional organization is organization according to substantive taxes. While many tax administrations are organized in this way, the general trend is toward a functional organization. See Aldo Schlemenson, Organizational Structure and Human Resources in Tax Administration, in Improving Tax Administration in Developing Countries 343 (Richard M. Bird & Milka Casanegra de Jantscher eds., 1992). See also Richard M. Bird & Milka Casanegra de Jantscher, The Reform of Tax Administration, in id. 1, 9.
For example, The United Kingdom’s Taxes Management Act includes statutory subdivisions on returns, assessment and claims, dispute settlement, recovery of monies owed, and penalties for tax offenses. See GBR TMA §§ 7–12, 29–3, 48–56, 60–70, 93–106. The U.S. Code, in Subtitle F on procedure and administration, includes sections on returns, assessment, collection, dispute resolution, tax offenses and penalties, and taxpayer ombudsperson. See USA IRC §§ 6001–7873. Belgium’s code includes sections on returns, audits and investigation, assessment, dispute settlement, and penalties. See BEL CIR arts. 297–463.
An additional functional category sometimes found in tax administration laws, one that forms the necessary precursor to the creation of the administrative bureaucracy, provides for the creation of the tax administration itself. However, in some jurisdictions the rules concerning the creation of departments or administrative authorities may be found in a separate law. See, e.g., DEU FVG.
See the discussion of who or what constitutes a taxpayer, infrasec. II(B).
See, e.g., KAZ TC arts. 142, 161–63 (articles regarding taxpayer rights, penalties for overdue tax payments, fines for late filing of returns, penalty for understatement of taxes, current payments, and objects of taxation); FRA CGI arts. 1725–56 septies (articles regarding penalties); GBR TMA §§ 86–106 (sections on interest on overdue tax and tax penalties).
See, e.g., Grundgesetz arts. 104a–115 (DEU) [hereinafter GG]; 5 U.S.C. §§101–306 (USA).
See, e.g., the Administrative Procedure Act, 5 U.S.C. §§ 551–83 (USA) [hereinafter APA]; and the Verwaltungsverfahrensgesetz (DEU).
See, e.g., Code of Civil Procedure §§ 166–213a, 511–44, 803–71 (DEU) (procedure for service of process, appeals, and execution levied on movable property and real property); Code of Civil Procedure arts. 411–20, 542–60, 651–94 (FRA) (procedure regarding representation, notice, and appeals).
See infrasec. III(C)(6).
William of Occam, Quodlibeta Septem (1320), quoted in John Bartlett, Familiar Quotations 143 (15th ed. 1980). This is the original statement of Occam’s Razor.
Examples of such provisions are included in the tax laws of the United States, France, and Germany; these codes include sections regarding tax liens and seizure of the taxpayer’s property. See USA IRC §§ 6321–27, 6331–44; FRA CGI arts. 1920–29 septies; DEU AO §§ 281–308.
For instance, in Australia provisions regarding returns and assessments are contained in the Income Tax Assessment Act, while in the United Kingdom such provisions are included in the Taxes Management Act. See AUS ITAA §§161–77; GBR TMA §§ 7–18, 29–40. Provisions regarding assessment are also contained in Germany’s income tax law. See DEU EStG §§ 25–28.
E.g., RUS TS; RUS STS.
In Australia, for example, the Taxation Administration Act 1953 and the Crimes (Taxation Offenses) Act 1980 both concern themselves with tax offenses. See AUS TAA §§ 8B–8Z; AUS CTO.
See GBR ICTA § 831 et seq.; AUS ITAA § 6 et seq.; FRA CGI; CIV CGI.
See, e.g., VEN COT §§ 19–29. French tax law draws a distinction between a contribuable (taxpayer) and a redevable. The former is the person in whose name the tax obligation is legally established; the latter is a person from whom the law may authorize the tax authorities to require payment of the tax obligation (e.g., a withholding agent or a person jointly liable for payment of the tax). See Gilbert Tixier & Guy Gest, Droit fiscal 222–23 (3rd ed. 1981). Confusingly, however, the term redevable is also used in a meaning synonymous with that of “taxpayer,” in the cases of taxes such as the VAT, the wealth tax, and the taxe professionelle. See Précis de fiscalité ¶¶ 2000, 4890, 6176 (1994); FRA CGI Titre II, ch. 1, sec. VI (Redevables de la taxe).
For example, in the United States, the Administrative Procedure Act [APA] applies to any “authority of the Government of the United States” that is not Congress, the courts, or a military authority. 5 U.S.C. § 551(1) (USA). Under the APA, the Treasury Department may issue regulations and rulings relating to internal revenue laws only after publication of a notice of proposed rule making, followed by public hearings. Id. § 553. A failure to comply would result in the regulation being invalid. See American Standard, Inc. v. United States, 602 F.2d 256 (Ct. Cl. 1979).
For further discussion of this issue, see suprach. 2, sec. (IV)(D).
See, e.g., Treas. Reg. § 601.210(a), (e) (as amended in 1983) (USA). See alsoch. 2, sec. IV(E).
See Treas. Reg. § 601.201(a)(2) (USA).
See id. § 601.201(1).
See, e.g., Id. § 601.201 (a)(2).
See, e.g., DEU AO §§ 149–53.
See, e.g., DEU EStG §§ 25, 1; DEU KStG § 49.
See, e.g., USA IRC §§ 6041, 6041A, 6042, 6044, 6045, 6049.
For example, a VAT input credit is typically allowed only if the taxpayer has an invoice from the supplier.
See, e.g., USA IRC § 6001; CAN ITA § 230; DEU AO §§ 140–48.
See, e.g., USA IRC § 7608; GBR TMA § 20C; CAN ITA § 231.3.
See, e.g., USA IRC § 7609; CAN ITA § 231.2.
See infrach. 12.
For example, U.S. law permits the Internal Revenue Service (IRS) to “compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense.” USA IRC § 7122; see also Treas. Reg. § 301.7122-1 (as amended in 1960) (USA).
In the United Kingdom, France, and Germany, payment may be suspended when the assessment is under appeal, while in Italy suspension of payment is not permitted. Organization for Economic Cooperation and Development, Taxpayers’ Rights and Obligations: A Survey of the Legal Situation in OECD Countries 99 (1990).
In the United Kingdom, the taxpayer may, in writing, appeal a tax assessment within 30 days after the date of notice of the assessment. GBR TMA § 31.
See id. § 32.
See infrasec. II(K)(9) concerning taxpayer rights to appeal.
See, e.g., USA IRC §§ 7441–75.
See id. § 7452; see also infrach. 5.
For example, in France, general principles of administrative law require that the legality of an administrative decision can always be reviewed by an administrative judge. See Judgment of Feb. 7, 1947, Conseil d’Etat, 1947 Recueil des arrêts du Conseil d’Etat [Lebon], No. 79128, at 50. Such decisions are then themselves appealable to the Conseil d’Etat. See Judgment of Oct. 19, 1962 Conseil d’Etat, 1962 Lebon, No. 58502, at 552.
See, e.g., id. See also USA IRC § 7482.
For example, in the United States, a written report [called a Revenue Agent’s Report or RAR] concerning the proposed changes to the taxpayer’s return, including explanations, is prepared after each examination. See Internal Revenue Manual 4237, Report Writing Guide for Income Tax Examining Officers § 231, MT 4237-17 (Apr. 23, 1987) (Basic Report), cited in Michael I. Saltzman, IRS Practice and Procedure ¶ 8.06[8] n.121 (2nd. ed. 1991). Such a report is beneficial to both the taxpayer and the tax administration. If the case is not settled, the Appeals Office prepares a memorandum discussing its decision. Id. ¶ 9.05[3]. The taxpayer may obtain a copy of this memo under the Freedom of Information Act. Id. n.5.
See 5 U.S.C. § 552(b)(5), (b)(7) (USA).
See Tax Ct. R. Prac. & Proc. 70(a)(1) (USA); Cl. Ct. R. 26 (USA); Fed. R. Civ. P. 26 (USA).
5 U.S.C. § 555(c) (USA).
For example, under French administrative law, each party must prove its case based upon the materials available on file with the court. However, a failure to reply, whether to the rapporteur or to the tax authority, allows the court to draw the inference that the party in default has no case to make in answer to the question. The effect is that the burden of proof shifts to the party who has the materials. See Judgment of May 28, 1954, Conseil d’Etat, 1954 Lebon, Nos. 28238, 28493, 28524, 30237, 30256, at 308.
For example, in the United States, under the decision of the Supreme Court in Welch v. Helvering, 290 U.S. 111, 115 (1933), the assessment of the Internal Revenue Service is presumed to be correct. Rule 301 of the Federal Rules of Evidence states that “in all civil actions… a presumption imposes on the party against whom it is directed the burden of going forward with evidence to rebut or meet the presumption....;” The taxpayer has the burden of proving the assessment wrong. Helvering v. Taylor, 293 U.S. 507, 514 (1935).
See, e.g., USA IRC § 6321.
See, e.g., GBR TMA § 61; DEU AO § 281.
For example, in the United Kingdom, if the taxpayer does not pay the sum due within five days of the seizure of property, the seized property will be sold at public auction to pay sums owed. GBR TMA § 61(4), (5), Provisions for public auction of seized property are also contained in the tax laws of Germany and the United States. See DEU AO § 298; USA IRC §§ 6335, 6336.
See, e.g., DEU AO § 309.
For example, the U.S. Code authorizes the IRS to enter into a written agreement with the taxpayer allowing the taxpayer to make payment in installments if such agreement would facilitate collection of the tax owed. USA IRC § 6159. See also GBR ICTA § 5(2), which in certain cases permits the taxpayer to satisfy his or her tax liability in two equal installments.
See, e.g., Code of Civil Procedure art. 1167 (FRA); Mass. Ann. Laws ch. 109A (Law. Co-op. 1995); Bankruptcy Code, 11 U.S.C. § 548 (USA).
See, e.g., USA IRC § 7122.
Countries with an office of ombudsperson include Australia, Austria, Denmark, France, and the United States; Canada, Germany, Italy, and Japan are among the countries without an ombudsperson. See OECD, supra note 34, at 20, 76–77. See also USA IRC § 7811.
See generally DEU AO §§ 233–39 (provisions regarding assessment of interest, including when interest payments are assessed and how they are calculated).
See USA IRC § 6601(e).
For example, in the United States, the rate is determined using the rate on treasury obligations. See id. §§ 6621, 1274(d).
For example, in the United States the overpayment rate bears an interest rate 1 percentage point lower than the underpayment rate. Id. § 6621(a)(1), (a)(2).
Some countries even have official documents outlining the taxpayer’s rights; examples of such documents include Canada’s Declaration of Taxpayer Rights (1985), France’s Charte du contribuable (1987), New Zealand’s Statement of Principles (1986), and the United Kingdom’s Taxpayer Charter (1986). OECD, supra note 34, at 70. See alsoch. 2, sec. II(F).
See, e.g., DEU AO § 30; USA IRC § 6103.
See, e.g., DEU AO § 122; USA IRC §§ 6323, 6331(d), 6335.
See USA IRC § 6331(d)(3).
See id. § 7605.
In the United States, this right is guaranteed under the APA (USA).
See, e.g., USA IRC § 7521.
See suprasec. II(F)(5).
See USA IRC § 7458.
See suprasec. II(F)(4).
See GBR TMA § 34 (assessment of tax generally may not be made later than six years after the chargeable period); USA IRC § 6501(a) (assessment of tax made within three years after tax return was filed).
In the United Kingdom, if tax was not paid on account of the taxpayer’s fraudulent or negligent conduct, assessment may be made within 20 years of the chargeable period. GBR TMA § 36(1), If a U.S. taxpayer files a fraudulent return, files no return, or in any other way willfully attempts to evade tax, assessment may be made at any time. USA IRC § 6501(c)(1), (c)(2).
Much of the pre-1990 taxpayer compliance research has been summarized and reviewed in two indispensable volumes: 1 Taxpayer Compliance (Jeffrey A. Roth et al. eds., 1989) and 2 Taxpayer Compliance (Jeffrey A. Roth & John T. Scholz eds., 1989).
”Despite the huge economic literature on tax evasion, which fundamentally focuses on the appropriate role and implementation of penalties … there seems to be no empirical study of penalty design and effectiveness in developing countries. What studies do exist, mostly for the United States, appear to be both model- and country-specific … and cannot easily be generalized to the quite different circumstances of developing countries.” Bird & Casanegra de Jantscher, supra note 2, at 5 n.8 (citations omitted).
See the discussion of this issue in Robert Kidder & Craig McEwen, Taxpaying Behavior in Social Context: A Tentative Typology of Tax Compliance and Noncompliance in 2 Taxpayer Compliance, supra note 73, at 47, 64–66.
Terms often used by writers on the topic include “unknowing noncompliance,” “lazy evasion,” or “lazy noncompliance.” Taxpayer Compliance, supra note 73, at 20. Other different, but essentially redundant, terms are also used. See the reviews of the literature in Kidder & McEwen, supra note 75, at 50–62. Some rules may be particularly difficult to comply with. For example, in the United States, a special task force of the Internal Revenue Service singled out the complexity of the estimated tax rules that “frustrate[] taxpayers, particularly individuals, to the extent that penalties are an acceptable alternative to compliance (emphasis added).” Commissioner’s Executive Task Force, Report on Civil Tax Penalties 15 (Feb. 27, 1989).
Besides making it easier for a taxpayer to comply, withholding also makes it more difficult for a taxpayer not to comply. See vol. 2, chs. 14, 15. This was also the conclusion of the United States Internal Revenue Service Commissioner’s Executive Task Force, Report on Civil Tax Penalties. Commissioner’s Executive Task Force, supra note 76, at 37–42.
For example, banks can be required not only to withhold and remit taxes on periodic payments, such as interest, but also to prepare and file declarations for income other than payments made by the bank itself. See Carlos A. Silvani & Alberto H.J. Radano, Tax Administration Reform in Bolivia and Uruguay, in Improving Tax Administration in Developing Countries, supra note 2, at 19, 29, 54–56; Charles E. McClure, Jr. & Santiago Pardo R., Improving the Administration of the Colombian income Tax, 1986–88, in id. 124, 132. Of course, without a self-assessment system, some of the effort of preparing tax declarations and computing liability can be shifted to the administration. However, given the limited amount of administrative resources in developing countries, this hardly seems to be a wise idea.
This also has the effect of shifting costs to those intermediaries. See Jaime Váiquez-Caro, Comments, in Improving Tax Administration in Developing Countries, supra note 2, at 145, 150.
See the discussion of the definition of the term “taxpayer,” suprasec. II(B).
See, e.g., Henry J. Aaron & Harvey Galper, Assessing Tax Reform 42–44 (1985). Their call for legal simplification has been quoted often in tax compliance literature.
Joel Slemrod discusses these issues in Complexity, Compliance Costs, and Tax Evasion, in 2 Taxpayer Compliance, supra note 73, at 156, 157–74. Of course, not all avoidance (or the organizing of one’s affairs so as to reduce obligations without also evading) constitutes a compliance problem. Administration is concerned only with avoidance that results in a reduction in normative (or “correct”) taxpayer obligations.
See generally Richard K. Gordon, Tax Administration Concerns in the Reform of Substantive Personal Income Tax Law in Emerging Economies, 46 Bulletin for International Fiscal Documentation 163 (1992).
Sanctions can be divided into types using a number of different criteria: civil and criminal, fines and imprisonment, per violation or per amount of tax forgone, or culpability of violation.
There are two basic types of compliance failures: failures to provide accurate information when due and failures to remit the correct amount of money when due. The former (information) is important to the administration only in that it allows the latter (money) to be properly computed and remitted. Nevertheless, it can sometimes be easier to identify and assess a failure to provide information necessary for the proper remittance of tax simply by reference to the actual failure itself, rather than by attempting to put a money value on it.
In the United States, for example, failure to file a return or to pay tax will result in sanctions unless such failure is due to reasonable cause and not willful neglect. See USA IRC § 6651 (a)(1), (a)(2). In Belgium, if the taxpayer fails to file a return or files an incomplete or inexact return, he will be sanctioned. However, in the absence of bad faith, the taxpayer’s sanction may be waived. BEL CIR art. 444.
Tax codes encourage the taxpayer to pay his or her taxes by having the amount of the fine increase the longer the taxpayer withholds payment. See USA IRC § 6651 (a)(1), (a)(2); GBR TMA § 93; BEL CIR art. 414; FRA CGI art. 1727.
For example, the laws of both the Russian Federation and Kazakstan impose 100 percent penalties for understatement of tax, regardless of whether the taxpayer is at fault. RUS TS art. 13; KAZ TC art. 163.
Penalties for such crimes as willful tax evasion or fraud may include monetary fines or imprisonment or both. See USA IRC §§ 7201–16. Willful tax evasion, for example, is considered a felony in the United States and is punishable by a fine of up to $100,000 or imprisonment of up to five years, or both, along with the costs of prosecution. Id. § 7201.
Jeremy Bentham, the father of English utilitarianism, saw the choices between possible modes as based on a calculation of risks of pain and pleasure. This view is still a basic premise of most discussion of deterrence. See Johannes Andenaes, Does Punishment Deter Crime? 11 Crim. L. Q. 76, 79(1968).
The legal scholar and economist Steven Shavell describes the equation as one of the magnitude and probability of harm versus the magnitude of benefit. Steven Shavell, Criminal Law and the Optimal Use of Nonmonetary Sanctions as a Deterrent, 85 Colum. L. Rev. 1232, 1236–38 (1985). A general discussion of rational choice theory in the context of taxpayer compliance can be found in Alfred Blumstein, Models for Structuring Taxpayer Compliance, in Income Tax Compliance: A Report of the ABA Section of Taxation, International Conference on Income Tax Compliance 159, 160–61 (Phillip Sawicki ed., 1983). This was also the conclusion of the United States Internal Revenue Service Commissioner’s Executive Task Force, Report on Civil Tax Penalties, supra note 76. at 13–14.
Most analyses of economic crimes do assume that criminals are principally profit maximizers. See, e.g., the discussion in Michael Gerken & William R. Gove, Deterrence: Some Theoretical Considerations, 9 Law & Society Rev. 497, 497 (1975). With the exception of tax protesters, it is probably a good guess that tax evaders almost always do so to maximize monetary profit. Therefore, the differences in individual utility functions might be relatively less than among other criminals, and sanctions might be relatively easier to design. See generally Robert V. Stover & Don W. Brown, Understanding Compliance and Noncompliance with Law: The Contributions of Utility Theory, 56 Social Science Quarterly 363, 374–75 (1975), Unfortunately, as discussed below, even this simplification turns out to be unlikely.
These two specific issues are addressed in greater detail at the text accompanying notes 120–24.
To maximize social utility, the severity of sanctions against a particular behavior would have to increase as a particular individual’s utility (in that behavior) increases. Samuel Kramer, An Economic Analysis of Criminal Attempt: Marginal Deterrence and the Optimal Structure of Sanctions, 81 J. Crim. L. & Criminology 398, 399 (1990).
Or, as Professor Shavell so succinctly puts it, “it is impossible to deter a person with no assets by the threat of monetary sanctions.” Shavell, supra note 91, at 1237. This means that monetary sanctions can rarely be enough to act as a sufficient general deterrent to undesired behavior.
See suprach. 2, sec. II(A). This issue is also emphasized in the United States Internal Revenue Service Commissioner’s Executive Task Force, Report on Civil Tax Penalties. See supra note 76, at 13.
It would also probably be counterproductive. See the discussion concerning possibly counterproductive aspects of relatively high penalties, infra at text accompanying notes 114–17.
A brief survey of some of the literature in the American context can be found in Scott H. Decker & Carol W. Kohfeld, Certainty, Severity, and the Probability of Crime: A Logistic Analysis, 19 Policy Studies Journal 2, 3–6 (1990).
Some examples of research confirming this point include Robert Mason & Lyle D. Calvin, A Study of Admitted Income Tax Evasion, 13 Law & Society Rev. 73, 85, 87 (1978); Harold G. Grasmick & Donald E. Green, Legal Punishment, Social Disapproval, and Internalization as Inhibitors of Illegal Behavior, 71 J. Crim. L. & Criminology 325, 327 (1980).
Many of these studies, each of which is concerned with income tax compliance in the United States, are summarized in 1 Taxpayer Compliance, supra note 73, at 97–110.
See id. 27, 30, 88, 97, 107–10; Steven Klepper & Daniel Nagin, The Anatomy of Tax Evasion, 5 Journal of Law, Economics & Organization 1 (1989).
See 1 Taxpayer Compliance, supra note 73, at 100.
This is not terribly surprising when considering the popularity of lotteries. It is not just a question of whether some people are risk-averse while others are not, but a more general, systemic inability to judge risk accurately.
This is discussed in Charles R. Tittle & Alan R. Rowe, Certainty of Arrest and Crime Rates: A Further Test of the Deterrence Hypothesis, 52 Social Forces 455, 456, 458 (1974). The article looked at general crime rates in the U.S. state of Florida.
See generally Philip J. Cook, The Economics of Criminal Sanctions, in Sanctions and Rewards in the Legal System: A Multidisciplinary Approach 50, 54 (Martin L. Friedland ed., 1989).
For example, smaller groups with a high level of group communication may have an earlier tipping point and perhaps an increased tipping effect. Don W. Brown, Arrest Rates and Crime Rates: When Does a Tipping Effect Occur? 57 Social Forces 671, 680 (1978).
There is a dearth of research into tipping and tipping points in tax compliance, even in the literature concerning income tax compliance in the United States. However, there is some. See the review in 1 Taxpayer Compliance, supra note 73, at 111.
See the discussion in Raymond Paternoster et al., Perceived Risk and Social Control: Do Sanctions Really Deter? 17 Law & Society Rev. 457, 458 (1983).
Depending on the jurisdiction, publication of the names of those taxpayers who are subjected to sanctions may raise issues of taxpayer confidentiality. For example, the U.S. Internal Revenue Service may only disclose to the general public a taxpayer’s name and assessed penalties when a compromise is reached with the taxpayer before the case is referred to the Justice Department for prosecution. USA IRC § 6103(k)(1).
If the taxpayer is uncertain as to the effectiveness of future evasive action, taxpayer costs will increase, in that uncertainty of success increases costs, while return remains the same. See James Alm et al., institutional Uncertainty and Taxpayer Compliance, 82 American Econ. Rev. 1018, 1018–20 (1992). The author’s understanding of these issues was greatly enhanced by a number of discussions with Professor Reinier Kraakman of the Harvard Law School.
Despite the statements of some revenue authorities to the contrary, most have accepted that the goal of tax administrators is not to maximize net take, but to maximize total welfare. See Richard Goode, Some Economic Aspects of Tax Administration, 28 IMF Staff Papers 249 (1981).
See Jonathan Skinner & Joel Slemrod, An Economic Perspective on Tax Evasion, 38 Nat’l Tax J. 345, 350(1985).
There are other possible effects. As taxpayers take greater evasive action, they may be inspired to commit even greater crimes. Also, if one method of avoidance or evasion becomes too difficult, they may abandon it but turn to others. See the discussion with regard to general deterrence theory in Jeffrey Grogger, Certainty vs. Severity of Punishment, 29 Economic Inquiry 279 (1991).
See the survey of data in Decker & Kohfeld, supra note 98; see also the discussion in the context of tax compliance in Steven Klepper & Daniel Nagin, The Criminal Deterrence Literature: Implications for Research on Taxpayer Compliance, in 2 Taxpayer Compliance, supra note 73, at 126, 135–36, 143–44.
See, e.g., Harold G. Grasmick & George J. Bryjak, The Deterrent Effect of Perceived Severity of Punishment, 59 Social Forces 471, 472, 475 (1980). They state that “the conclusion directly challenges the basic premise of deterrence theory that man is a rational actor.” Id. at 472. They then go on to posit that this conclusion cannot not be correct, and that the data or analysis leading to the conclusion must be wrong. Id. at 473, Some might argue that this places theory above empiricism, an assertion that most scientists, at least since Newton, would fault.
See infra text accompanying notes 120–21.
There may also be a form of substitution effect where taxpayer compliance improves in those areas where a violation might draw the administrator’s attention, but whose savings are less than those where certainty has not reached a tipping point. See the discussions of substitution effects in Michael J. Graetz et al., The Tax Compliance Game: Toward an interactive Theory of Law Enforcement, 2 Journal of Law, Economics, and Organization 1 (1986); Klepper & Nagin, supra note 101, at 18–20.
Also, it is often the case that the greater the severity of sanctions, the less likely that they will be fully applied. See Vito Tanzi & Parthasarathi Shome, A Primer on Tax Evasion, 40 IMF Staff Papers 807, 812 (1993).
This point was also emphasized in U.S. Internal Revenue Service Commissioner’s Executive Task Force, Report on Civil Tax Penalties, supra note 76, at 13.
See Grasmick & Green, supra note 99, at 327–29.
See Sally S. Simpson & Christopher S. Koper, Deterring Corporate Crime, 30 Criminology 347, 367 (1992).
See Yankelovich, Skelley & White, Inc., Taxpayer Attitudes Study: Final Report (Public Opinion Survey Prepared for the Public Affairs Division, Internal Revenue Service, 1984). The study seems to suggest that perhaps large-scale evasion would not be seen as a victimless crime.
The Leona Helmsley case in New York, where a wealthy hotel heiress was prosecuted for tax evasion, generated considerable support for the state tax administration. In India, arrests for tax evasion of major industrialists have also been popular. See Richard K. Gordon, Jr., Income Tax Compliance and Sanctions in Developing Countries, in Taxation in Developing Countries 455, 461 (Richard M. Bird & Oliver Oldman eds., 4th ed. 1990).
Scholars may disagree as to whether the existence of personal morality is part and parcel of rational choice theory or describes another theory of human interaction. Some, for example, contrast rational choice models with “psychiatric models” of moral inhibitions or internalized norms. Andenaes, supra note 90, at 78–79. However, one can also include morality and internalized norms as aspects of individual utility functions. The important issue, however, is that people do not act solely to maximize dollar profit.
That is, to avoid doing things that are wrong in themselves, as opposed to wrong because prohibited. See James J. Teevan Jr., Subjective Perception of Deterrence (Continued), 13 Journal of Research in Crime & Delinquency 155, 157 (1976).
See Gerken & Gove, supra note 92, at 502.
See Gordon, supra note 123, at 462. See also Virendra Singh Rekhi, Notes on Legal Methods of Combating Corruption: Lessons from the Indian Experience (Nov. 15, 1995) (on file with the Legal Department, International Monetary Fund).
See Commissioner’s Executive Task Force, supra note 76, at 13–15.
See USA IRC § 6651 (a); BEL CIR art. 444; DEU AO § 152. See also Commissioner’s Executive Task Force, supra note 76, at 67–68.
Upon failure to pay tax, the U.S. Code presumes that the failure to pay is unreasonable; a fine will be imposed unless the taxpayer can show that such failure was due to reasonable cause. USA IRC § 6651(a)(2).
In almost all of the OECD countries, the one exception being New Zealand, interest is imposed if the taxpayer does not pay his or her taxes on time. OECD, supra note 34, at 18–19, 62–66 (1990). Most of the OECD countries also compensate the taxpayer for overpayment with interest. Id. at 20, 83–84.
The Colombian tax law is an example of such a system. In Colombia, “[i]f the taxpayer agrees to settle at the time of the initial field audit by the tax authorities, the penalty is 20 percent … of the underpayment. If a formal demand for supplementary payment made by the tax administration is accepted by the taxpayer before the case goes to court, the penalty is 40 percent. If the taxpayer agrees to the increased assessment after the case goes to court, but before the final judicial determination of liability, the sanction is 80 percent,” McLure & Pardo, supra note 78, at 136. Thus, Colombian tax laws encourage settlement of disputes.
See USA IRC §§ 7201–202 (willful tax evasion and failure to collect or pay tax are felonies); DEU AO § 370(3)1 (penalty for tax evasion is increased if committed out of gross self-interest and is of a large scale).
See, e.g., USA IRC § 7203 (penalty imposed for willful failure to file a tax return); FRA CGI art. 1725 (penalty imposed for failing to file required documents). Similar points were raised in the United States Internal Revenue Service Commissioner’s Executive Task Force, Report on Civil Tax Penalties. See supra note 76, at 15, 42–43.
See also Rekhi, supra note 127.
For example, the U.S. Internal Revenue Service Commissioner’s Executive Task Force, Report on Civil Tax Penalties concluded that the civil penalty for underpayment owing to negligence (i.e., no reasonable care) should be 20 percent, with a de minimis rule, while the penalty for intentionally underpaying (although without fraud) should be 50 percent. Supra note 76, at 67–68.
For example, the U.S. Internal Revenue Service Commissioner’s Executive Task Force, Report on Civil Tax Penalties concluded that the civil penalty for underpayment due to fraud should be 100 percent. Id. at 68.
See, e.g., Bankruptcy Code, 11 U.S.C. §§ 507(a)(7), 523(a)(1) (USA).
No OECD country provides for prison terms for civil tax offenses. See OECD, supra note 34, at 19. While in most countries imprisonment is one possible sanction for tax crimes, it is very rarely imposed.
For example, in the United States and the United Kingdom, tax deficiencies may result in a loss of privileges, including the ability of attorneys and accountants to practice their trade. Id. at 19, 67–69.
USA IRC §§ 3402, 3403, 3505, 3509, 6672; see also AUS ITAA §§ 222AOA–222AOD.
USA IRC § 6672.
This is the case in the United States; while the IRS may assess 100 percent penalties against all responsible persons, it may enforce such assessments only until it has collected an amount equal to the tax liability. Gens v. United States, 615 F.2d 1335 (Ct. Cl. 1980).
See, e.g., USA IRC §§ 7201, 7202.
For example, in the United States, the Internal Revenue Code includes the following acts as crimes punishable by fines and prison: making fraudulent statements in a tax return or information return, making fraudulent statements under penalty of perjury, and removing or concealing information with intent to defraud. USA IRC §§ 7204–207.
See discussion suprasec. III(C)(2).
For example, in the United States, the Internal Revenue Code includes the following acts as crimes punishable by fines and prison: numerous acts by revenue officers or agents, including extortion, bribery, conspiracy to defraud, and failure to report the illegal acts of others. USA IRC § 7214. The Internal Revenue Code supplies a cross-reference to a penalty provided in the U.S. criminal law relating to officers of the United States who trade in public funds, debts, or property. Id. § 7214(c).
See, e.g., id. § 7216.