This blog entry was just also posted on my Federal Tax Crimes Blog, here.
The Staff of the Joint Committee on Taxation has published "Present Law And Background Information Related To Selected Tax Procedure And Administration Issues" dated April 14, 2013, available here.
The three principal topics are (as presented):
I. Background and Federal Tax Provisions and Practices Implicated in Identity Theft FraudI focus here on the last item -- Civil Tax Penalties as a Factor in Voluntary Compliance. The subtopics are:
II. Authority to Regulate the Conduct of Paid Tax Return Preparers.
III. Civil Tax Penalties as a Factor in Voluntary Compliance.
A. Civil Assessment ProcessThe first first of these subtopics -- A. Civil Assessment Process -- is short and probably already known to readers of this blog. Hence, I do not dwell upon that portion of the Report. The first two divisions of the second subtopic - B. Civil Tax Penalties -- is probably also known to readers, hence I focus only on the last (Selected Issues) and quote it in its entirety (footnotes omitted), although it too is cryptic.
B. Civil Tax Penalties
Overview of penalties
Legislative and other history
Selected Issues Raised by Practitioner Groups and Others
Whether penalties encourage voluntary compliance
One criticism of the current regime is that many of the penalties which have been enacted, particularly over the past decade, seem to be designed for the purpose of raising revenue or punishing taxpayers rather than encouraging voluntary compliance. To support this assertion, practitioner groups and others have pointed to the strict liability penalty created under section 6662(b)(6) which imposes a penalty on transactions which lack economic substance and the strict liability penalty provided under section 6707A for failure to disclose reportable transactions. They argue that the lack of a reasonable cause defense under these provisions eliminates the opportunity, and the incentives, to remediate and to become compliant. Under section 6707A, for example, the penalty may be imposed even if the failure to disclose the transaction is not willful but instead inadvertent (perhaps because the taxpayer could not identify whether a transaction was a reportable transaction).