Some Realism About Responsive Tax Administration
University of Miami - School of Law
January 13, 2013
Tax Law Review, Vol. 66, 2012
Responsive Regulation is a popular regulatory theory across a broad array of disciplines. The influence of Responsive Regulation on tax administration has greatly increased over the past decade, producing a theory of “Responsive Tax Administration.” This work has proven powerful in the United States, causing scholars to advocate remodeling the tax compliance system under a Responsive Tax Administration framework. Extensive, scholarly focus on related areas of tax compliance research, such as reciprocity and service, has supplemented these calls for reform. The Internal Revenue Service (“Service”) has remodeled the important large business tax compliance sphere under the influence of Responsive Tax Administration and the related research. Despite this crucial remodeling, there has been little critical analysis of this application of Responsive Tax Administration to the United States large business sector. In this Article, I begin the overdue task of critiquing the application of Responsive Tax Administration to the United States large business sector by using the case-study of the Compliance Assurance Process (“CAP”).
CAP is a revolutionary, pre-audit initiative that the Service has signaled may be the way of the future for large business tax administration. CAP finds its academic support in Responsive Tax Administration and is consistent with part, though, importantly, not all, of Responsive Tax Administration theory. In this Article, I argue that CAP problematically leverages faith in the perceived transformative powers of Responsive Tax Administration programs to reduce accountability at the very time when increased accountability is needed, fails to use penalties meaningfully, potentially reducing transparency and resulting in a “test drive” effect for taxpayers that may undermine sound tax administration, and creates self-selection bias problems. I suggest potential solutions to each of these problems. More generally, the analysis provides a first step toward an overdue broader critique of the application of Responsive Tax Administration to United States large business. I argue that the particular problems with CAP result from a failure to appreciate adequately the potential weaknesses of Responsive Tax Administration theory and an overemphasis on the persuasive aspects of the theory in practice. While the innovative nature of Responsive Tax Administration theory may have much to offer, we need some more realism about its potential limitations.
Number of Pages in PDF File: 58
Keywords: Tax Policy, Responsive Regulation
JEL Classification: E62, H2, K34
Date posted: March 11, 2012 ; Last revised: February 1, 2013