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Tax Avoidance and Income Measurement

133 Pages Posted: 20 Mar 2008  

Joshua D. Rosenberg

University of San Francisco School of Law

Date Written: 1988


This article explores the American income tax system and its emphasis on "transaction taxation." In this system, taxable income for any year is intended to reflect three factors: (1) the taxpayer's economic income; (2) the extent to which the taxpayer has earned tax benefits by engaging in tax-favored behavior; and (3) the extent to which Congress believes that the imposition of tax might impose an undue hardship on the taxpayer. However, measuring taxable income by reference to transactions has major potential sources of inaccuracy, which the article details.

This article goes on to examine judicial, administrative, and legislative approaches to these mismeasurement problems, the inherent problems in those approaches, and suggests certain alternatives. One alternative is for the tax system to be more receptive to nonpolar measurements as opposed to measuring tax-significant factors by definitive determinations (whether certain transactions are made or not).

The article sets forth a workable definition of tax avoidance. A person engages in tax avoidance if, and to the extent that, she acts in order to exaggerate the system's mismeasurement of economic income or any other tax-significant factor. Taxpayers should be asked to report more accurate measurements of income and should be denied benefits and subjected to penalties for attempting to abuse mismeasurements. The article proposes solutions that prove more equitable, more intellectually honest, and more workable than the existing tax system.

Keywords: Federal income tax, tax avoidance, income measurement, Internal Revenue Service, tax reform

Suggested Citation

Rosenberg, Joshua D., Tax Avoidance and Income Measurement (1988). Michigan Law Review, Vol. 87, 1988. Available at SSRN:

Joshua Rosenberg (Contact Author)

University of San Francisco School of Law ( email )

2130 Fulton Street
San Francisco, CA 94117
United States

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