Discretion in Tax Enforcement

Abstract

This paper deals with the issue of whether the Revenue Service (RS) should be allowed, or even encouraged, to negotiate settlement agreements with taxpayers subject to examination. We consider the case in which the RS enjoys discretion at the settlement stage, its stance being guided by officers' professional judgment. We show that discretionary settlements serve a desirable function, as they allow the RS to better exploit taxpayer-specific information and to take advantage of the bargaining power it can wield at the negotiation stage.