No Deduction for Tax Planning and Controversy Costs
Calvin H. Johnson
University of Texas at Austin - School of Law
October 18, 2010
Tax Notes, Vol. 129, p. 333, October 2010
The Shelf Project
The law gives a negative tax or subsidy to tax planning and controversy work, because the costs of that work are generally deductible. But the return from the investment, in the form of less tax to be paid, is not taxed. The treatment is self-destructive in that the system gives a subsidy to undercut itself. Even without the negative tax, tax planning and controversy work are too profitable for the common good, because the taxpayer making the decision does not have to consider the harm done to other taxpayers who must make up the tax revenue.
This proposal would disallow the deduction of the costs of tax planning, return preparation, tax audits, litigation, collection, and refunds. Payments to tax experts — including in-house experts — and the costs of tax litigation would be disallowed in full. An intermediate remedy — denying 25 percent of the costs — would apply to investment planning and structuring by professionals who are not tax specialists and when the work is not primarily tax-related but tax issues are present.
The proposal is made as a part of the Shelf Project, a collaboration among tax professionals to develop proposals to raise revenue. The Shelf Project is intended to raise revenue without a VAT or a rate hike in ways that will improve the fairness, efficiency, and rationality of the tax system. Now is the time for congressional staff work to be done to prevent the impending revenue crisis.
Number of Pages in PDF File: 8Accepted Paper Series
Date posted: May 30, 2012
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