Privacy and Tax Information Collection: A Response to Blank and Glogower

25 Pages Posted: 8 Apr 2024 Last revised: 18 Apr 2024

See all articles by Michelle D. Layser

Michelle D. Layser

University of San Diego School of Law

Date Written: April 5, 2024

Abstract

In a recent article published in the Iowa Law Review, Professors Joshua Blank and Ari Glogower proposed a new “actor-based” information reporting regime that would be more comprehensive, more difficult to avoid, and more equitable than the current approach. However, their proposal would create new privacy risks that are not implicated by the current regime. Privacy values are an important tax policy objective that must be analyzed along with the values of efficiency, equity, and administrability. Accordingly, this Essay draws on theory about tax privacy to analyze the privacy implications of actor-based reporting.

The Essay identifies several ways that actor-based information reporting may violate the privacy interests of high-end taxpayers. First, actor-based information reporting would be more coercive than prior law, forcing taxpayers to disclose financial information about themselves to third parties. Second, the proposed regime may break important income tax norms by collecting types of data that is not normally collected under the income tax laws. Third, emerging cybersecurity risks may call for heightened tax privacy and counsel against increased data collection, whereas the proposed regime would do the opposite.

The Essay then considers a less invasive alternative to actor-based reporting: an incentive-based approach. It argues that economic incentives can be used to nudge people to share relevant information with the IRS, and it provides three examples. These include incentives for taxpayers to report rent paid to landlords, incentives for tax insurance companies to report information about insured tax positions, and incentives for tax whistleblowers. These policies have privacy advantages over actor-based reporting, but they may perform less favorably in terms of equity, efficiency, or simplicity objectives. Ultimately, tax policymakers must decide whether the privacy risks of an actor-based approach are an acceptable cost of tax enforcement, or whether less invasive policies should be adopted despite their shortcomings.

Keywords: tax, privacy, tax administration

JEL Classification: K34

Suggested Citation

Layser, Michelle D., Privacy and Tax Information Collection: A Response to Blank and Glogower (April 5, 2024). San Diego Legal Studies Paper No. 24-010, Available at SSRN: https://ssrn.com/abstract=4785656 or http://dx.doi.org/10.2139/ssrn.4785656

Michelle D. Layser (Contact Author)

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

HOME PAGE: http://https://www.sandiego.edu/law/faculty/biography.php?profile_id=12852

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