Cooperative Tax Regulation

Abstract

This Article describes a new approach to tax regulation based on cooperation, information sharing, and interest convergence. Currently, tax regulation in the United States relies too heavily on sticks and not enough on carrots. While recognizing that taxpayers will comply with the law in the presence of effective deterrence and enforcement, this Article optimizes the use of penalties as a compliance instrument by, among other things, rewarding compliant taxpayers, engaging taxpayers and their advisors in a participatory process, and appreciating the elegant power of cognitive devices that portray payment of taxes as a bonus rather than nonpayment of taxes as a penalty. Even with optimal penalties, tax officials cannot currently enforce the law effectively due to severe resource and information asymmetries. To overcome these debilitating shortcomings, the government must improve funding, recruiting, training, and retention. It must also partner with taxpayers and practitioners to strengthen detection, enforcement, and prosecution of abusive tax avoidance. Cooperative tax regulation can accomplish a cultural shift not only in taxpaying but also in tax advising and tax administration. Ultimately, it can produce a regulatory environment of collaboration rather than adversity, ex ante resolution rather than ex post controversy, and certainty rather than secrecy.