Alternative Sanctions and the Federal Tax Law: Symbols, Shaming, and Social Norm Management as a Substitute for Effective Tax Policy

Abstract:     
On several occasions in the past decade, when confronted with taxpayers taking advantage of the Internal Revenue Code in ways that Congress considered objectionable, Congress responded in an unusual way. Rather than merely modifying the Internal Revenue Code to alter the tax consequences of the taxpayer's actions, or imposing traditional civil or criminal penalties on the taxpayer, Congress turned to alternative sanctions. For example, in response to United States citizens who renounce citizenship to avoid taxes, Congress enacted public shaming provisions that require publication of the individuals' names in the Federal Register and modified the federal immigration laws to banish the former citizens from re-entering the United States. Similarly, in response to United States corporations that reincorporate abroad to reduce United States tax liability, Congress enacted legislation purporting to ban the corporation from entering into future government contracts. This Article, relying primarily on the public shaming and immigration-law banishment provisions applicable to individuals who renounce citizenship to avoid taxes, analyzes the alternative sanctions from three perspectives: their instrumental effects, their expressive function in altering social norms, and their role as symbolic legislation. This Article concludes that alternative sanctions, when used to deter or condemn behavior for which the tax code provides a tax benefit, produce significant instrumental, expressive, and symbolic problems. This Article suggests a narrower role for alternative sanctions, as a limited tool of tax enforcement, that might avoid these problems.

Keywords: tax, taxation, sanctions, alternative sanctions, immigration, shaming

JEL Classifications: H2, H24, H25, H26

Accepted Paper Series