Demystifying Disclosure: First Steps
Posted: 4 Jun 2003
Mandated disclosure is a central feature of proposed responses by the private sector and the government to the proliferation of corporate tax shelters. This article, a commentary on David Weisbach, Ten Truths About Tax Shelters, 55 Tax L. Rev. (2002), examines the utility of tax return disclosure in improving the quality of information available to revenue agents and other government tax officials (the audit and tax policy functions of disclosure) and in influencing taxpayers' decisions to engage in tax shelter activity (the deterrence function of disclosure). I suggest that a revenue agent is entitled to know the details of every transaction that is relevant to a determination of tax liability ("the revenue agent's right to know") and, thus, consider unfounded the assertion that disclosure should not interfere with so-called "legitimate" tax planning. The article reviews the weaknesses of current disclosure requirements and the limitations of present civil and criminal sanctions. I consider various disclosure incentives with the view to increasing compliance, including enactment of a meaningful civil penalty for nondisclosure that is unrelated to the accuracy-related penalty, more aggressive use of civil and criminal sanctions in appropriate cases, and public disclosure of penalties. I also discuss the desirability of personal accountability for accurate disclosure, a topic that is particularly relevant in light of the current Enron inquiry.
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