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Nathan Newman on October 19, 2008 - 11:39pm
While some lost tax revenue is due to loopholes and manipulation, another tax drain is straight-up tax cheating by corporations and individuals. States are responding with a variety of strategies for catching these tax cheats and recovering this lost revenue:
Cracking Down on Abusive Tax Shelters: A 2001 Multistate Tax Commission report estimated that tax shelters designed to illegally evade taxes cost states as much as $12 billion per year. Facing the largest losses in the nation, California pioneered legislation requiring new reporting on the details of suspicious shelters, enacting heavy fines for using illegal shelters, and creating an amnesty program to promote voluntary compliance. The amnesty program brought in a cascade of revenue: over $1.4 billion from 1,202 taxpayers, or an average payment of over $1 million per taxpayer, reflecting the widespread tax cheating among this wealthy population. Other states are following suit.
Multi-State Collaboration: Going beyond the occasional cooperation between state auditors, eight states, led by Massachusetts, created a new multi-state agreement to share data in a project called the Clearinghouse, which will compare information on people who work in one state and earn income in another in order to reveal tax cheating.
Shaming Tax Cheats: To encourage payment by delinquent taxpayers or those caught violating the law, more than a dozen states have begun publishing lists of businesses and individuals owing taxes on the Internet. Connecticut pioneered this high-tech shaming strategy in its Top 100 list, which collected more than $161 million in overdue tax debts over its first seven years. Other states have been collecting similar amounts with their own programs.
- California Legislative Analyst's Office - Abusive Tax Shelters: Impact of Recent California Legislation
- Multistate Tax Commission - Model Statute on Disclosure of Reportable Transactions: requires disclosure of transactions with potential for tax avoidance or evasion
- Multistate Tax Commission - Model Statute for Tax Avoidance Transaction Voluntary Compliance Program: creates a voluntary compliance (amnesty) program
- Multistate Tax Commission - Model Statute on Compilation of State Tax Return Data: requires taxpayers to report certain data as filed on the tax returns in the other states