This article is based, in part, on Book's written testimony on low-income taxpayer clinics before the House Ways and Means Oversight Subcommittee, presented on July 12, 2001 (Doc 2001-19387 (7 original pages), 2001 TNT 137-24).

The essay also critiques the recent Tax Court case of Robinette v. Commissioner, and the Tax Court's application of the abuse of discretion standard to tax collection determinations. Arguing that allowing parties to introduce evidence in judicial appeals of collection determinations is inconsistent with administrative law jurisprudence, the essay reveals that Robinette ultimately places taxpayer interests at risk by deemphasizing systemic incentives. Robinette provides cover for a judicial usurping of agency functions, which may provide the means to correct for error in individual cases, but will not create additional judicial pressure to improve agency practice. The essay suggests that as a matter of policy and law, the Tax Court should identify CDP cases involving collection determinations as informal adjudications, subject to the Administrative Procedure Act (APA).

This article considers how the current earned income tax credit (EITC} creates opportunities for individuals to affirmatively misstate eligibility. It examines insights from the popular book Freakonomics and argues that despite the confusing and sometimes inconsistent state of research relating to tax compliance, policymakers concerned with reducing the tax gap should consider structural incentives and visibility as key factors relating to the decision to intentionally comply with the tax laws. While more empirical research must be done that examines and considers the relationship between various independent variables that may affect the decision to comply with the tax laws, policymakers can limit opportunities for noncompliance by considering (i) how taxpayers and return preparers perceive the visibility of their conduct, and (ii) how structural incentives of particular provisions might contribute to the willingness to cheat. The article examines how structural incentives and visibility operate in the context of the EITC, and create the conditions that allow individuals to intentionally misstate eligibility on tax returns.

The article provides a framework for the government to reduce errors through shifting additional costs to third parties, as well as to reduce the incentives for individuals themselves to attempt to game the system and cheat. The article builds on my prior scholarship that integrated a sociological typology of noncompliance, and continues with my focus on presenting policymakers with an opportunity to evaluate efforts to reduce errors based upon an understanding as to what drives cheating and errors in the tax system.

The EITC’s hybrid status in and of itself does not reveal policy options to reduce cheating or error; rather, the unique characteristics of the tax system’s eligibility and delivery process present opportunities to reduce error and eliminate cheating without eliminating the EITC’s low administrative cost and high participation benefits. In particular, the government should impose additional costs on return preparers, third parties that benefit from the EITC’s placement in the tax system. In addition, the article reveals how reducing structural incentives for taxpayers themselves to game the system can materially reduce error rates without sacrificing other policy goals

Prior to CDP’s enactment, the IRS had the power to collect taxes from taxpayers without judicial review of administrative collection determinations. This power, atypical for creditors which often must get judicial approval for summary collection action, led many observers to criticize the IRS’s powers as dangerous to individuals, even when there was no dispute that taxpayers owed back taxes. Notwithstanding this criticism, CDP’s formalizing parts of the administrative collection process and interposing judicial review of certain IRS collection actions has itself been controversial for its draining of administrative resources from compliance, an issue of even greater importance in times of budget deficits. This article reveals how administrative and constitutional law principles that provide checks on arbitrary government determinations have largely been absent from tax collection adjudications. The adoption of CDP serves as a progression toward adopting broader rule of law principles in the tax system. Fidelity to rule of law has come to dominate the American legal landscape in the past century, but has been slow to make inroads in the tax system.

The article addresses this challenging topic by considering IRS collection procedures, and the changes that CDP brought to that process. Second, it examines principles from administrative and constitutional law, and reveals how tax adjudications have largely been outside the mainstream of these two important external checks on agency behavior. In light of the tax law’s isolation from these disciplines, it reveals that Congress and the Supreme Court have implicitly and explicitly overstated the government’s interest in the collection process and understated the individual’s interest. Third, in light of these administrative and constitutional law principles, it makes specific proposals to improve CDP, including a consideration of the proper standard of review that courts should employ in review of collection determinations. These proposals, provide the means for policymakers to appreciate the potential for CDP to provide more meaningful taxpayer protections and minimize the aspects of CDP that are imposing significant systemic costs and straining valuable tax compliance resources.