Law Professors Voice Concern With Disparate Penalties Across Classes of Taxpayers

We have been following the news reports of the IRS' very commendable efforts to challenge US tax evasion protectively cloaked by Swiss bank secrecy laws. The latest US-Swiss declaration of August 19, 2009 represents the fruit of those efforts and will result in the IRS receiving information about several thousand US taxpayers with Swiss accounts. The agreement provides that UBS will first notify account holders that their names are to be shared with IRS and to afford those account holders a chance to dispute the disclosure under Swiss law.

We have also watched with interest the IRS' efforts to promote voluntary disclosure by US taxpayers prior to IRS' commencement of examination. With the lure of amnesty in the form of no criminal action and reduced civil penalties, the IRS hopes taxpayers will come forward "voluntarily." This general concept is equally laudable. However, the IRS' promise to keep open the September 23 amnesty deadline for taxpayers who come forward even after they receive notice from UBS that their names are about to be revealed is the point at which we depart company with IRS policy.

It seems that when a taxpayer is told he is about to be "given up", the leniency of the amnesty is no longer warranted. The self-identification is no longer "voluntary." Ordinarily, a taxpayer who accepts an amnesty offer gives up the chance, however slim, of being overlooked; the government is spared the effort to ferret him or her out; and the reward of lesser sanctions has some cogency. Here, though, the taxpayer is specifically identified, forgoes no chance of staying under the radar, and spares the government nothing. Admittedly, the window of time for all of this is short, but the principle of amnesty for less-than-really-voluntary disclosure seems unduly generous.

Our law school operates a low income taxpayer clinic. In the last few years, we have seen an increase in the assertion of penalties against the poorest, least sophisticated taxpayers with virtually negligible room for negotiation by the IRS. It would seem that a blanket program of offering reduced penalties and no criminal action to wealthy, sophisticated tax dodgers who come forward on the eve of their names being turned over to the IRS and with prior knowledge of the forthcoming disclosure, is suggestive of something less than even handed tax administration.