A recent article (hat tip to tax prof) suggests that we should pay taxpayers $3000 to be audited--in fact, pay them so much that in many cases it would overcompensate taxpayers for the trouble. See Ayres & Nalebuff, Winning the Audit Lottery, Forbes (Nov. 30, 2009).
Their argument goes like this:
1) more people should be audited--only about 2 per 1000 are now--or we need to be able to better target audits
2) but the intensive audits necessary to help the IRS better target audits are "an unfair burden for those who were slected" and led to "anti-IRS pressure" and the elimination of the "superaudit" program.
3) so therefore we should pay people to undergo the "extreme audit."
- It would overcompensate most, but "go a long way to reducing the public opposition to auditing."
- "The cost of an audit is just the kind of risk that government should insure"
- the higher revenue from additional audits "should more than cover the costs of compensation"
- this will help "end the stranglehold that anti-IRS forces have on compliance efforts"--becuase it is similar to the "Takings Clause" requirement that a government should be forced to compensate for use of its power
This is nuts. My list of reasons could be quite long. I'll stick to just a few.
1) Almost 90% of the population thinks that we should comply with the tax laws. If you start paying taxpayers to undergo audits, it is quite likely to have the opposite effect--can't you see the right-wing anti-tax nuts running ads that say things like "the government these days has to PAY people to undergo an audit--shows what a mess the tax system is" or "when the government pays taxpayers to be audited, it must mean that they know the audit is an unfair burden for anyone to bear"?
2) If the IRS pays to audit, it will want to make that payment pay off. Audits under this regimen would likely be harsher, and cause more taxpayer antipathy, rather than easing concerns. (This is similar to a comment by Peter Pappas on tax prof.)
3) We know that audits are a useful enforcement tool, so we should fund the IRS sufficiently to permit it to enforce the law appropriately. Paying taxpayers just distracts from the underlying issue--the fact that the number of audits has declined markedly over the last few decades, and the intensity of the audits has as well, as more audits are conducted as "paper" audits that don't reveal as much
4) Although most taxpayers are compliant, there are, we know, a number of really big tax cheats--like the people that hid money overseas, or the Wesley Snipes actalikes that just stop filing tax returns. We shouldn't be paying those cheats to undergo audits. The typical honest taxpayer's anger will necessarily rise--sort of like the bailouts for the banks, followed by the ridiculous bonuses partly funded--no matter how you cut it--out of taxpayer dollars. People just don't like that happening.
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