Fraud Civil and Criminal and Collateral Consequences (4/13/13)

Professor Joshua Blank, Professor of Tax Practice and Faculty Director of the Graduate Tax Program, New York University School of Law, here, has posted this article to SSRN:

Blank, Joshua D. , Collateral Compliance (February 25, 2013). University of Pennsylvania Law Review, Forthcoming; NYU Law and Economics Research Paper No. 12-06. Available at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2032788

This posting is a draft of 2/25/13 of an article that will, presumably subject to final revisions, appear in the 162 U. PA. L. REV. __ (forthcoming, 2013).

This draft says:

PRELIMINARY DRAFT: 2/25/13
Please do not cite without permission

For this reason, I will not cite it quote it, etc., except for the table of contents below.  I do expect, however, to make a blog entry on it when the law review article is published.  In the meantime, readers having an interest in the area can read this draft

SSRN Abstract:

As most of us are aware, the failure to comply with the tax law can lead to civil and criminal tax penalties. But tax noncompliance has other consequences as well. Collateral sanctions for tax noncompliance, which are imposed on top of tax penalties and are often administered by agencies other than the taxing authority, increasingly apply to individuals who have failed to obey the tax law. They range from denial of hunting permits to suspension of driver’s licenses to revocation of passports. Further, as the recent Supreme Court case Kawashima v. Holder demonstrates, some individuals who are subject to tax penalties for committing tax offenses involving “fraud or deceit” may even face deportation from the United States. Criminal law scholars have written dozens of articles on the collateral consequences of convictions. Yet tax scholars have virtually ignored collateral tax sanctions, even though their use by the federal and state governments is growing. 

This Article offers a comprehensive analysis of collateral consequences in the taxation context. While many criminal law scholars have proposed ways to alleviate collateral consequences, this Article argues that, when applied in connection with violations of the tax law, collateral consequences may offer previously unappreciated social benefits. In many cases, collateral tax sanctions can promote voluntary tax compliance more effectively than additional monetary tax penalties, especially if governments increase public awareness of collateral tax sanctions. Governments should therefore embrace these sanctions as a means of tax enforcement and taxing authorities should publicize them affirmatively.

After considering the effects of collateral tax sanctions under each of the predominant theories of voluntary compliance, I propose principles that governments should consider when designing collateral tax sanctions. These principles suggest, for example, that initiatives to revoke driver’s licenses from individuals who have failed to pay outstanding taxes or professional licenses from individuals who have failed to file tax returns would likely promote tax compliance. However, whether the sanction of deportation for tax offenses involving fraud or deceit will have positive compliance effects is far less certain. Finally, I suggest how taxing authorities should publicize these sanctions to foster voluntary compliance.

The Table of Contents (page numbers excluded to show the outline of the presentation in the article):

I. INTRODUCTION

II. THE RISE OF COLLATERAL TAX SANCTIONS 

A. Collateral Consequences Generally 

B. Collateral Tax Sanctions Defined 

C. Examples 

1. Federal Examples 

a. Passports 

b. Residency

c. Housing Assistance 

d. Government Contracts and Employment

2. State and Local Examples

a. Driver’s Licenses and Vehicle Registration 

b. Professional Licenses 

c. Recreational Licenses 

III. WHY COLLATERAL TAX SANCTIONS PROMOTE COMPLIANCE 

A. Why Do People Pay Taxes? 

B. Collateral Tax Sanctions and Motivations of Compliance 

1. Deterrence 

2. Reciprocity 

3. Signaling 

4. Duty of Citizenship 

C. Drawbacks 

1. Spillover Effects 

2. Brute Deterrence 

3. Tax Privacy 

4. Observability 

IV. WHEN SHOULD COLLATERAL TAX SANCTIONS APPLY? 

A. Proposed Principles 

1. Tax Offense Is Violation of Tax Rule, Not Tax Standard

2. Tax Offense Defined by Tax Law and Identified by Taxing Authority 

3. Collateral Tax Sanction Is Proportionate to Tax Offense 

B. Beyond Tax Delinquency? 

1. Non-Filing and Professional Licenses

2. Household Employment Taxes and FDIC Insurance 

3. “Fraud and Deceit” Tax Offenses and Deportation 

C. Publicity by Taxing Authorities 

V. CONCLUSION