Prior Tax Research Articles

The Use of Good Character Discounts in Sentencing Financial Fraudsters

This article assesses how good character is used to discount sentences in tax and benefit fraud cases in Aotearoa New Zealand. Four factors are highlighted. The first is a focus on neoliberal priorities that privilege “good citizens” who are primarily tax fraudsters, with the provision of sentence discounts to ensure the offender can remain in employment. The second is sentence reduction, which is primarily visible in tax cases when repayment of the outstanding funds is made. While the average value of benefit fraud is less than a quarter of the average tax fraud, typically, money obtained from benefit fraud is used for living expenses and not available for repayment. Third, only tax fraudsters benefited from anticipated reparation, on the expectation from the court that this would occur after sentencing. Finally, the ways in which prior tax offending is classified leave tax offenders in a stronger position to claim no prior offending and receive a sentence reduction for good character. These factors combine to result in unfair outcomes that benefit tax offenders.

A Study on whether Mitigation Provisions can be applied to other Tax Items on the grounds of prior Tax Judgments ― Focusing on each Discussion before and after 2021 Framework Act on National Taxes Amendment ―

A Study on whether Mitigation Provisions can be applied to other Tax Items on the grounds of prior Tax Judgments ― Focusing on each Discussion before and after 2021 Framework Act on National Taxes Amendment ―

THE PRINCIPLE OF JURISDICTIONAL AUTONOMY OF A COURT ADJUDICATING IN A CRIMINAL FISCAL CASE IN THE JUDICIAL PRACTICE OF ORDINARY AND ADMINISTRATIVE COURTS

In cases of fiscal offences and fiscal transgressions, an element of evidence in a case is often a tax decision issued in tax proceedings conducted against a person who acts as a defendant in a penal fiscal proceedings. As a result, a question arises as to the evidentiary value of such a decision, which was issued for the purposes of tax proceedings and not criminal fiscal proceedings. In particular, an important question is whether the criminal fiscal court is bound by the findings included in such a decision? An additional problem for the issue addressed is the question, whether between tax and penal fiscal proceedings there is any kind of preliminary relationship, which makes the examination of a penal fiscal case dependent on the prior tax decision issued by a relevant tax administration authority. The analysis of the jurisdiction of common and administrative courts does not allow for an excplicit answer in this respect, which led the authors to take up the presented issue and to formulate de lege lata conclusions, related also to the need to unify the jurisdprudence. The paper also discusses the principle of free assessment of evidence in the context of characterising a tax decision (of both, constitutive and declaratory nature) as one of the possible evidences that a fiscal court has to deal with.

Digital Knowledge and Tax Compliance in Developing Countries: A Conceptual Review

The world is gradually embracing digitization in all spheres of life, vis –a- vis taxation. As the trend progresses, digital knowledge can be considered an important factor for improving tax compliance. Our review of prior tax knowledge and compliance literature shows a mixed opinion. Majority of the opinions support that tax knowledge has significant and positive influence on compliance. However, other views showing negative relationship indicated that tax knowledge alone is not sufficient in influencing compliance. This study further established that knowledge should be democratized into basic knowledge and digital knowledge. Both knowledge categorizations can influence tax compliance significantly. This study therefore advanced existing knowledge model to reflect the trend in tax digitization. This trend requires knowledge to be digitally competitive. This study recommends that future research should consider the effect of digital knowledge on tax compliance

Carbon tax acceptability with information provision and mixed revenue uses

Public acceptability of carbon taxation depends on its revenue use. Which single or mixed revenue use is most appropriate, and which perceptions of policy effectiveness and fairness explain this, remains unclear. It is, moreover, uncertain how people’s prior knowledge about carbon taxation affects policy acceptability. Here we conduct a survey experiment to test how distinct revenue uses, prior knowledge, and information provision about the functioning of carbon taxation affect policy perceptions and acceptability. We show that spending revenues on climate projects maximises acceptability as well as perceived fairness and effectiveness. A mix of different revenue uses is also popular, notably compensating low-income households and funding climate projects. In addition, we find that providing information about carbon taxation increases acceptability for unspecified revenue use and for people with more prior tax knowledge. Furthermore, policy acceptability is more strongly related to perceived fairness than to perceived effectiveness.

Fairness, effectiveness, and needs satisfaction: new options for designing climate policies

Financial compensations are often proposed to address regressive distributional impacts of carbon taxes. While financial compensations have shown to benefit vulnerable groups distributionally, little is known about their impacts on emission reduction or needs satisfaction. A potential problem with cash compensations is that if households spend this money back into the economy while no additional decarbonisation policies are implemented, emission reductions that arose from the tax may at least partly be reversed. In this letter, we compare the emission savings and impacts on fuel and transport poverty of two compensation options for carbon taxes in 27 European countries. The first option consists of equal per capita rebates for home energy and motor fuel taxes. The second option is the provision of universal green vouchers for renewable electricity and public transport, supported by additional investments in green infrastructures to meet increased demand for such green consumption. Results show that the first option of tax rebates only supports small emission reductions. In contrast, universal green vouchers with expanded green infrastructures would reduce home energy emissions by 92.3 MtCO2e or 13.4%, and motor fuel emissions by 177.5 MtCO2e or 23.8%. If green vouchers and infrastructure were provided without a prior tax, emission savings would be slightly lower compared to the ‘tax and voucher’ scheme, but fuel and transport poverty would drop by 4.1 and 2.2 percentage points, respectively. In contrast, taxes with rebates would increase fuel and transport poverty by 4.1 and 1.8 percentage points. These findings demonstrate that it is important to take environmental and energy poverty impacts of compensations for unfair distributional impacts of climate policies into account at the design stage. Such compensation measures can achieve higher emission reductions and reduce energy poverty if they involve an expansion of the provision of green goods and services, and if everyone is given fair access to these goods and services.

Behavioral effects of tax withholding on tax compliance: Implications for information initiatives

Using a theory-driven experiment with working adult participants and deliberate tax framing, this paper reports on the effects of tax withholding choices on subsequent individual income tax reporting behavior. We find reporting increases with the level of taxes over-withheld, and decreases with taxes under-withheld, with the latter effect being much larger in magnitude. We explore two information programs designed to influence social norms: compliance information specific to one's income class, and information related to the fairness of the tax system. Increasing either the compliance norm or the fairness measure increases tax reporting but only information on fairness affects the withholding choice. A third information program – a service that resolves uncertainty over tax liability – offsets the undesirable effects of tax under-withholding on reported liability when acquired. Using information from an extensive questionnaire, we find several interesting associations between decision-making in the experiment and the prior tax filing experiences and behaviors of participants.

THE NEW TAX LEGISLATIVE AND REGULATORY PROCESS

This paper compares the enactment and implementation process for the 2017 Tax Cuts and Jobs Act (TCJA) to prior tax reform acts, as well as situates it within other developments in the legislative process more generally. It details how the 2017 enactment process solidifies reconciliation as the primary vehicle for the enactment of major tax measures, a trend nearly two decades in the making. The ambitious scope of the TCJA, as well as the rushed and partisan reconciliation process by which it was enacted, has led to ambiguities and instability in the legislation. These features have, in turn, posed an enormous implementation challenge for Treasury, which has led to some troubling results. Finally, reconciliation has set up the opportunity for Congress to engage in budget gimmicks in the future. This paper discusses these trends and proposes solutions to them.

What Does an Executive Stock Sale Tell the Market? Evidence From Sale Transactions Following Stock Option Exercises

We examine the impact of liquidity and diversification, taxes, and loss aversion on the informativeness of insider sales following stock option exercise. We do not find evidence of liquidity and diversification influencing post-sale decisions, suggesting that option-related sales are less impacted by these forces than previously thought. We further find evidence that sales more likely to be influenced by taxes are associated with less negative post-sale returns. This finding extends prior tax research by showing evidence that insiders are selling soon after the tax-advantaged holding period is achieved and also that these sales are less informative about future returns. Finally, we provide a more distinct contribution to the literature in our examination of loss aversion. Specifically, we provide evidence that the exercise price is the most likely reference point for establishing the gain and loss domain for the insider. We further show that as the price approaches this reference point, sales become less informative and insiders are less willing to continue holding. We also examine short-window market reactions to sales among each of these dimensions, finding that the market generally interprets the impact of each of these factors in a manner that is consistent with the post-sale returns.

What Does an Executive Stock Sale Tell the Market? Evidence From Sale Transactions Following Stock Option Exercises

We examine the impact of liquidity and diversification, taxes, and loss aversion on the informativeness of insider sales following stock option exercise. We do not find evidence of liquidity and diversification influencing post exercise sale decisions, suggesting that option related sales are less impacted by these forces than previously thought. We further find evidence that sales more likely to be influenced by taxes are associated with less negative post sale returns. This finding extends prior tax research by showing evidence that insiders are selling soon after the tax advantaged holding period is achieved, and also that these sales are less informative about future returns. Finally, we provide a more distinct contribution to the literature in our examination of loss aversion. Specifically, we provide evidence that the exercise price is the most likely reference point for establishing the gain and loss domain for the insider. We further show that as the price approaches this reference point, sales become less informative and insiders are less willing to continue holding. We also examine short window market reactions to sales among each of these dimensions, finding that the market generally interprets the impact of each of these factors in a manner that is consistent with the post-sale returns.

U.S. Corporations' Repatriation of Offshore Profits: Evidence from 2018

We investigate how companies with large holdings of cash abroad have used those funds following the Tax Cuts and Jobs Act (TCJA), which eliminated prior tax disincentives on the repatriation of foreign earnings.

U.S. Corporations' Repatriation of Offshore Profits

We investigate how companies with large holdings of cash abroad have used those funds following the Tax Cuts and Jobs Act, which eliminated prior tax disincentives on the repatriation of foreign earnings.

Do Investors Use Prior Tax Avoidance when Pricing Tax Loss Carryforwards?

ABSTRACTThe Internal Revenue Code allows firms to carry excess tax losses forward to offset future taxable income and reduce taxes. Consistent with tax loss carryforwards (TLCFs) creating a significant asset, prior research finds that investors positively value TLCFs. However, investors face significant uncertainty about whether firms will have sufficient future taxable income to benefit from TLCFs. We hypothesize that investors' valuation of new TLCFs will vary with firms' prior tax avoidance behavior because it signals firms' abilities to generate taxable income to offset TLCFs through tax planning. We confirm that investors assign a positive value to new TLCFs and find that investors' valuation varies with firms' prior tax avoidance behavior. Investors positively value TLCFs when firms exhibit high variability in prior tax avoidance and high levels of prior tax avoidance. Our results are incremental to the effect of changes in the valuation allowance on investors' valuation of new TLCFs.JEL Classifications: M40; M41; M49.Data Availability: Data used in this study are available from public sources identified in the paper.

Peculiarities of the fair value taxation regime for financial instruments

The enactment of s24JB represents a significant change in the taxation of financial instruments. The traditional approach of including amounts in gross income on the earlier of receipt or accrual is superseded by a fair value regime grounded in International Financial Reporting Standards. Initially, this approach appears logical, resulting in an alignment of the determination of taxable income and total comprehensive income for financial reporting purposes. A closer examination, however, reveals a number of tensions between the relevant International Financial Reporting Standards and s24JB. This confirms the position in the prior corporate governance and tax literature that seldom are new laws and regulations free from dysfunctional consequences.

The Impact of Multiple Tax Returns on Tax Compliance Behavior

ABSTRACTTax compliance research has used prospect theory to describe taxpayers' behavior finding that taxpayers with pending payments due (loss frame) report more aggressively than taxpayers with pending refunds (gain frame). Since taxpayers often file multiple returns and prior research has only examined the impact of single returns on compliance behavior, we extend the research by incorporating the element of taxpayers filing multiple returns (state and federal returns). This study compares taxpayers' behavior in a single net refund or single net payment due condition versus a multiple refund (larger refund and smaller payment due) or multiple payments due condition (larger payment due and smaller refund). Using mental accounting theory, the results show that taxpayers' aggressiveness shifts up in a refund position when the refund is presented as multiple returns rather than a single net return. Taxpayers' aggressiveness shifts down when their payment due position is presented as multiple returns rather than a single net return. While the results in the single net return conditions were consistent with prior compliance research, the results in the multiple returns conditions show a shift in taxpayer aggressiveness from prior research where taxpayers were less aggressive in the multiple payment due condition than the multiple refund condition. A path analysis lends insight into these results by finding that taxpayers' compliance behavior in the single net return and multiple returns conditions is driven by their affective reactions to their tax position. These results suggest that prior tax compliance research that has not incorporated multiple returns may be missing an essential element of the decision environment. These results also extend the growing body of accounting research on mental accounting by providing some initial insight into the role of affect on behavior for single versus multiple outcomes.

The introduction of a gambling tax in South Africa: What are the odds on the implementation thereof?

The South African Revenue Service has been exploring the possibility of implementing a form of taxation on gambling winnings since the Minister of Finance’s Budget Speech in 2010. On a superficial level it seems a logical mechanism for broadening the tax base – a case of increasing the tax collected from those who can afford the luxury of gambling. There are, however, a number of unintended consequences that government does not seem to have considered. As a result, this article uses a detailed content analysis of the prior academic and professional tax literature to explore possible weaknesses/flaws of a tax on gambling winnings in South Africa. These include the administrative burden of such a tax, certain economic consequences of allowing gambling losses as a tax deduction and the possible social consequences thereof. These findings mean that the article provides a meaningful contribution by critically assessing the proposed tax with the aim of informing policy development and future quantitative studies on a tax on gambling winnings.

IRS Revenue Section 263(a): Changes to Asset Classification Under Tangible Property Regulations

How do the Tangible Property Regulations affect you? If you are a business taxpayer who has acquired, produced or improved tangible property such as buildings, machinery or equipment, you may need to make changes to accounting methods and revise your tax planning strategy. Based on options granted by the IRS, you may have the opportunity to expense items capitalized as improvements in prior tax years to claim the additional deductions and capture losses for assets disposed of that were not claimed previously.

The runaway taxpayer

In order to analyze the determinants of tax evasion, the existing literature on individual tax compliance typically takes a ‘prior-to-audit’ point of view. This paper focuses on a ‘post-audit, post-detection’—so far unexplored—framework, by investigating what happens after tax evasion has been discovered and noncompliant taxpayers are asked to pay their debts. We first develop a two-period dynamic model of individual choice, considering an individual that has been already audited and detected as tax evader, who knows that Tax Authorities are looking for her to cash the due amount. We derive the optimal decision of running away in order to avoid paying the bill, and show that the experience of a prior tax notice reduces the probability to behave as a scofflaw. We then exploit information on ‘post-audit, post-detection’ tax compliance provided by an Italian collection agency for the period 2004–2007 to empirically assess the relationship between prior tax notices and unlawful behavior. The evidence from alternative logit model specifications supports our theoretical prediction: successful tax notices are negatively correlated with the probability of running away.

The Superiority of Environmental Federalism in the Presence of Lobbying and Prior Tax Distortions

AbstractIt is generally believed that environmental federalism tends to generate greater pollution emissions than centralized policymaking. This paper demonstrates that the opposite can occur in the presence of lobbying. Although the decentralized regime gives rise to a tax‐interaction effect, which induces policymakers to set lax environmental policies, it may also reduce the political pressure on enlarging allowed emissions. If the latter outweighs the former, then the decentralized regime will generate less pollution than the centralized regime. Moreover, we also show that the decentralized regime can be more efficient than the centralized regime, which provides an alternative theoretical support for the superiority of environmental federalism.

The 2012 IRS Offshore Voluntary Disclosure Initiative

On January 9, 2012, the IRS announced yet another offshore voluntary disclosure program (the 2012 OVDI) following on the success of the 2009 Offshore Voluntary Disclosure Program (the 2009 OVDP) and the 2011 Offshore Voluntary Disclosure Initiative (the 2011 OVDI), which were announced many years after the 2003 Offshore Voluntary Compliance Initiative (OVCI) and the 2003 Offshore Credit Card Program (OCCP). Voluntary disclosure initiatives typically offer reduced penalties in exchange for taxpayers voluntarily coming into compliance before the IRS is aware of their prior tax indiscretions. The 2012 OVDI is patterned after the 2011 OVDI but increases the maximum “FBAR-related” penalty from 25% to 27.5% of the highest account value at any time between 2003 and 2010. The 2012 OVDI does not have a stated expiration date but can be terminated by the IRS at any time as to specific classes of taxpayers or as to all taxpayers. In all, the IRS has seen at least 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. Since the 2011 program closed in September 2011, hundreds of taxpayers have come forward to make voluntary disclosures. Those who have come in since the 2011 program closed last year will be able to be treated under the provisions of the new 2012 OVDI.Most individuals wrongly believe that prior tax indiscretions can somehow be routinely resolved in a purely civil manner, without a criminal investigation or prosecution. However, within the past few years, at least 40 U.S. taxpayers and another 20 advisors (bankers, lawyers, consultants, etc.) have been criminally indicted for activities associated with U.S. persons holding undeclared interests in foreign financial accounts. Untold others are targets or subjects of ongoing federal criminal investigations. If the initial taxpayer contact is from the IRS, a purely civil tax resolution is no longer certain and the likelihood of substantial civil penalties is significant. If the initial taxpayer contact regarding an undisclosed interest in a foreign financial account is from the Department of Justice, a purely civil tax resolution is anything but certain and is perhaps unlikely. Actions designed to avoid detection by the government will surely increase the potential for criminal prosecution. The government is to be highly commended for its ongoing enforcement efforts which are destroying the ability of a U.S. taxpayer to maintain an undisclosed, “secret” foreign financial account. Foreign account information is flowing into the government through the development of relationships with corresponding taxing agencies in other countries; treaty based information exchanges; use of the civil summons process seeking identification of account holders in foreign institutions operating within the jurisdiction of the United States; indictments of foreign institutions and their bankers operating within the jurisdiction of the United States; receipt of information from whistleblowers and informants; cooperation from taxpayers, advisors, foreign banks and bankers who have been criminally prosecuted; the threat of future disclosures pursuant to the Foreign Account Tax Compliance Act (FATCA) and Foreign Financial Asset Reporting (Form 8938 and new IRC § 6038D); and data mining submissions received from participants in initiatives designed to encourage voluntary compliance.Taxpayers having undisclosed interests in foreign financial accounts must consult competent tax professionals before deciding to participate in the 2012 OVDI. Many taxpayers will decide to submit a voluntary disclosure based on a personal desire to come into compliance now that they are aware of the FBAR and other foreign account reporting requirements. Others may simply want to move on with their lives. Some may decide to risk detection by the IRS and the imposition of substantial penalties, including the civil fraud penalty, numerous foreign information return penalties, and the potential risk of criminal prosecution. Although the 2012 OVDI penalty regime may seem overly harsh for many, the decision to participate should include an economic analysis of the taxpayers projected future earning power that could be generated from the funds held offshore. Participating taxpayers may well benefit by repatriating stagnant foreign funds into a recessionary domestic economy with a suffering real estate market and business opportunities lurking behind every corner.