International Symposium: “The Professionals: Dealing with the Enablers of Economic Crime”

By Diane Ring

Just as summer is in full swing, the VIRTEU Project is back with a close look at a less than sunny side of economic life — the role that professionals (read lawyers, accountants and auditors) can play in enabling economic crime. This coming Wednesday July 21, 2021 (starting at 10:15am ET) join us in a three-panel zoom symposium that investigates how and why professionals may play this enabling role, and what responses and solutions we might consider. We will look carefully at real life case studies and talk with experts from various sectors as we explore this ongoing issue.

Register here to join us for this zoom symposium.

Institutional Corruption and Avoidance of Taxation: Final VIRTEU Roundtable

By Diane Ring

The most recent Roundtable session in the series of four VIRTEU [Vat fraud Interdisciplinary Research on Tax crimes in the European Union] sessions this spring focused on the limited success we have seen with the formal regimes of gatekeepers tasked with ensuring that taxpayers accurately meet their reporting and taxpaying obligations. The session then explored the role that whistleblowers play in remedying the resulting enforcement gaps. (A recording of this 3rd Roundtable is available here). Building on that discussion, the 4th and final Roundtable session, to be held Friday March 12, 2021 at 12:30pm EST (5:30pm GMT), will turn to the related topic, Institutional corruption and tax avoidance.

This March 12th discussion will examine corruption broadly understood to encompass not only the most direct forms of corruption (e.g. bribes) but more indirect forms (including implicit deals with officials), on to questions of undue influence, conflict of interest and the power of lobbying. Attention will be given to not only government actors, but also structural and institutional features that impact corruption and avoidance of taxation, including the role of large corporations, wealth, and power bases. For more information on the Roundtable, see below. To join us for the discussion, please register here.

VIRTEU Roundtable #3: Whistleblowing, Reporting, and Auditing in the area of taxation

by Diane Ring

We do not yet live in a world in which taxpayer compliance can simply be assumed. Instead, we must rely on the interplay of reporting requirements, internal and external auditing, and ultimately whistleblowing, to help ensure compliance with the tax system. How do they fit together? What can we expect from reporting and auditing? When do they breakdown, and why? How does whistleblowing–both the actual cases and the “threat” of whistleblowing–shape law, taxpayer behavior, and society’s understanding of compliance. And when does this tax noncompliance intersect with government corruption and fraud? What recommendations and options might we consider for the future?

Next week, the VIRTEU Roundtable Series tackles these questions in its 3rd Roundtable: “Whistleblowing, Reporting and Auditing in the area of taxation.” (VIRTEU [Vat fraud: Interdisciplinary Research on Tax crimes in the European Union]). This session builds on the first two Roundtables which gathered experts from around the world to discuss tax crime, corruption, CRS, and business ethics, and which can be viewed online: (1) Roundtable #1: Exploring the Interconnections between tax crimes and corruption; and (2) Rountable #2: CSR, Business Ethics, and Human Rights in the area of taxation.

The 3rd Roundtable, on “Whistleblowing, Reporting and Auditing in the area of taxation,” will be held Friday February 26, 2021 at 5:30-7:00pm GMT (12:30-2:00pm EST). For more information on the panel, see below. To join us, visit the registration link here.

CSR, Business Ethics & Human Rights through a Tax Lens: VIRTEU Roundtable Series Continues

by Diane Ring

Last month, the VIRTEU Roundtable Series launched with a discussion I had the opportunity to moderate on the basic connections between tax crime and corruption.  (VIRTEU [Vat fraud: Interdisciplinary Research on Tax crimes in the European Union]). Clearly, we were only just getting started — the discussion ended because time was up but the questions continued. This week’s roundtable takes a closer look at the role that CSR (corporate social responsibility), business ethics and human rights can, should, or do play in business conduct, in tax enforcement strategies, and in the design of tax law itself.

These three frames for regulating (business) behavior are regularly examined and debated in the corporate and regulatory literature, but their application to the tax system remains under explored. If you are interested in thinking more about the tax side, join us this Friday February 12, 2021 at 5:30-7pm GMT (12:30-2:00pm EST). For more information on the panel, see below. To join, visit the registration link here.

Tax Crime and Corruption: VIRTEU Roundtable Series and Research

by Diane Ring

It is no surprise to those working in the tax field, whether in government, private practice, academia or the nonprofit sector, that not all taxpayer mistakes are innocent. Some taxpayers affirmatively engage in fraud, and sometimes that fraud is wrapped up with corruption. The high profile spate of tax leaks beginning in 2008 helped put a more public face on many aspects of an old problem.

As part of an effort to better respond to tax crimes and corruption, the EU has funded an interdisciplinary and comparative research legal research project — VIRTEU [Vat fraud: Interdisciplinary Research on Tax crimes in the European Union]. This project is aimed at exploring connections between tax fraud and corruption. Focused in part on VAT fraud, the relevant issues and the kinds of questions that must be asked are universal across the tax system.

VIRTEU, for which I am a special advisor, is hosting a Roundtable Discussion Series this spring that brings together experts from academic institutions, nongovernmental organizations, and the private sector to engage in topical discussions around the general problem of tax fraud and corruption. Along with the the VIRTEU project’s Principal Investigator Dr. Costantino Grasso and Co-Investigator Dr. Lorenzo Pasculli, I will be organizing and hosting the series, which is also sponsored by Boston College Law School, Coventry University Research Centre on Financial and Corporate Integrity, and OLAF (the European Anti-Fraud Office).

The first session, “Exploring the interconnections between tax crimes and corruptions“, will be held via Zoom on Friday January 29, 2021 (at 11:00am EST/ 4:00pm GMT). Here is the registration link. See below for more details – and join us for what promises to be an invigorating discussion of the connections between the legal and policy frameworks for corruption and for tax crimes.

Superman, Tax Evader?

By: Leandra Lederman, with thanks to my in-house comics expert, Nickolas Cole

Nick, who’s been a Superman fan since childhood, got me the Oct. 1961 issue of the Superman comic for Christmas. It’s got a story in it billed as “Superman Owes a Billion Dollars” in taxes! Here’s the splash panel:

The basic premise is that a new Revenue Agent “at the Internal Revenue Bureau in Metropolis,” Rupert Brand,* discovers “no record that Superman has ever paid taxes!” (In case you’re wondering, nope, the IRS was not called the “Internal Revenue Bureau” back then. In 1953, it changed its name from the “Bureau of Internal Revenue” to the “Internal Revenue Service.” Perhaps a clue that not to rely on any of the tax statements in the story!)

Brand figures out the quickest way to reach Superman about this apparent delinquency, and explains that even the President of the United States pays taxes (cf. these blog posts), and so must Superman!

Why does Superman owe tax? Well, the story explains that “each year, Superman captures countless criminals, collecting a fortune in reward money!” And not just that, “whenever he digs up buried treasure” [treasure trove, anyone?] “or squeezes coal into diamonds, he earns more untold millions! All that wealth is income!”

Continue reading “Superman, Tax Evader?”

#TrumpTaxReturns

By Sam Brunson

Image from 401kcalculator.org. CC BY-SA 2.0

For the last several months, I’ve been meeting a guitarist and sometimes other musicians at a Chicago park to play outdoor socially-distanced jazz. This Sunday, driving home, my wife asked me if we knew what Trump had paid in taxes. “Of course not,” I confidently responded. “It looks like we do now,” she said.

And with that, my work goals for this week changed. I’m sure everybody reading this has seen Sunday’s New York Times story (and probably also its follow-up from yesterday). Along with a ton of other tax people, I’ve been trying to make sense of and contextualize the story, both to myself and to the public. And I’ve largely been doing my thinking in real-time on Twitter.[fn1]

I thought that I’d assemble a lot of those Twitter threads here into one place. At most I’ll lightly edit them and I’ll link to the actual threads on Twitter, too. Because over there I included GIFs on almost every tweet and I think I outdid myself. The relevant content will be here, though. Continue reading “#TrumpTaxReturns”

Announcing the 2020 Indiana/Leeds Summer Tax Workshop Series!

Indiana Leeds PR image to useBy: Leandra Lederman

As I posted previously, this summer, Dr. Leopoldo Parada from the University of  Leeds School of Law and I (with the support of the Indiana University Maurer School of Law) will co-host the new Indiana/Leeds Summer Tax Workshop Series. It will meet online via Zoom on Thursdays from 10:30am-noon Eastern time (3:30-5pm British Summer Time). If you are interested in cutting-edge tax issues, we hope you will consider attending!

We received many terrific submissions in response to the Call for Papers. As stated there, we prioritized tax topics that would be of interest to scholars in multiple countries. We are very fortunate to have Professor Ruth Mason from the University of Virginia kicking off what promises to be an outstanding series! The following is the full list of speakers and the papers they’ll be presenting: Continue reading “Announcing the 2020 Indiana/Leeds Summer Tax Workshop Series!”

More on the College Admissions Scandal

By Sam Brunson

On Wednesday, I posted about how tax law played a central role in the college admissions scandal. As I’ve read through a little more of the affidavit, I decided to highlight two additional detail in this whole scandal, details that suggest that, for at least some of the participants, the tax consequences were very important.

Bruce Isackson and Facebook Stock

Bruce Isackson is the president of WP Investments, a real estate investment and development fund.[fn1] According to the affidavit, he used the fake athlete thing (soccer for the older daughter, rowing for the younger) to get two daughters into USC. He seems to have also paid for his younger daughter to get a better ACT score.

What’s interesting for purposes of this post is how he paid. Continue reading “More on the College Admissions Scandal”

Key Worldwide Foundation and College Admissions Scams

By Sam Brunson

When I first read about the massive college admissions scam, I read it for roughly the same schadenfreude as everybody else. It was an interesting—and frankly, kind of pathetic—story of wealth and entitlement.

And then I read the affidavit supporting the criminal indictment. And I learned that, as much as this is a story of wealth and entitlement, it’s more than that: this is a story that revolves around taxes. And specifically, the abuse of a tax-exempt organization.

There seem to have been two main schemes to get participants’ kids into schools they wouldn’t have otherwise qualified for. The first involved cheating on entrance exams. The second involved bribing athletic directors and others to designate their kids as athletic recruits (often in sports the kids didn’t play), and , each of which had its own fee structure. But each scheme had something in common. The recipient of the payments was Key Worldwide Foundation. Continue reading “Key Worldwide Foundation and College Admissions Scams”

New Paper on Tax Enforcement and Corporate Malfeasance

By: Leandra Lederman

I just finished drafting a paper that got me reading a lot about corporate fraud. I find fraud fascinating, so this was a bit of a treat! The new paper is Information Matters in Tax Enforcement, and it’s co-authored with my former student Joe Dugan (JD ’15), who is an attorney at DOJ (but did not write in his official capacity). We recently posted the article on SSRN (here), and will soon be looking for a home for it.

This article was prompted by Professor Wei Cui’s publication of Taxation Without Information: The Institutional Foundations of Modern Tax Collection, 20 U. Pa. J. Bus. L. 93 (2018). Cui sets forth the contrarian thesis that “modern governments can practice ‘taxation without information.’” His argument rests on two premises: (1) “giving governments effective access to taxpayer information through third parties does not explain the success of modern tax administration”; and (2) modern tax administration succeeds because business firms are pro-social, fostering compliance. Professor Daniel Hemel favorably reviewed Cui’s article on TaxProf blog.

Cui particularly takes issue with Henrik J. Kleven et al., Why Can Modern Governments Tax So Much? An Agency Model of Firms as Fiscal Intermediaries, 83 Economica 219 (2016), and Dina Pomeranz, No Taxation Without Information: Deterrence and Self-Enforcement in the Value Added Tax, 105 Am. Econ. Rev. 2539 (2015), both of which show the importance of third-party information reporting to tax enforcement. Cui’s article also criticizes Leandra Lederman, Reducing Information Gaps to Reduce the Tax Gap: When Is Information Reporting Warranted?, 78 Fordham L. Rev. 1733 (2010), which argued that information reporting is useful but not a panacea, and set forth six factors to evaluate the likely effectiveness of proposed information-reporting requirements.

Information Matters in Tax Enforcement takes on both of Cui’s arguments, as well as his subsidiary claim that the value-added tax (VAT) does not involve third-party reporting or reporting of individual transactions. Joe and I marshal a lot of evidence to show (1) third-party information reporting is generally very effective, and (2) firms are not inherently pro-social. Rather, the literature supports Kleven et al.’s argument that numerosity increases compliance. That is, where more people would have to collude, cheating is less likely due to the increased risk of defection. The fact that large firms generally are more tax compliant than small ones—a point Cui concedes—is consistent with that. Large firms are also subject to more regulation and oversight, which produce reliable information flows from the firm to the government. Joe and I also show that VATs do involve third-party reporting, with the modern trend being digital real-time reporting. Continue reading “New Paper on Tax Enforcement and Corporate Malfeasance”

The Fyre Festival: Intro to Ja Rule’s Tax Troubles

By Sam Brunson

Photo by Eduardo Santos. CC BY 2.0

Like much of America, I watched a Fyre Festival documentary last week. I chose Hulu’s Fyre Fraud over Netflix’s Fyre: The Greatest Party That Never Happened because I only had time for one, and Fire Fraud had an interview with Billy McFarland. (I’ve since heard great things about Netflix’s documentary, too, so I’ll probably watch it eventually.)

About nineteen and a half minutes into the documentary, we’re introduced to Ja Rule; we see him in an interview (with Wendy, apparently), who says to him, “So you spent two years in prison.”

He responds, “Yeah, I went in on my state charge for the gun charge, and they ran it concurrent with my tax stuff.”

Now, Ja Rule’s tax troubles are probably the least interesting part of the documentary (and are over, iirc, as soon as he laughs after saying “tax stuff”). But I always find celebrity tax evasion interesting, so I thought I’d run it down a little. Continue reading “The Fyre Festival: Intro to Ja Rule’s Tax Troubles”

Tax Evasion and the Fraud Diamond

By: Leandra LedermanFraud Diamond image

There is an extensive set of literatures on tax compliance and evasion, often discussing the traditional economic model (the deterrence model) and/or behavioral theories such as social norms or tax morale. (For recent examples summarizing the theories, see this article by Kathleen Delaney Thomas, this one by Adam Thimmesch, or this one by yours truly.) There is also a separate accounting literature on fraud.

A key concept in this accounting literature is the “Fraud Triangle.” Yet despite the important role this theory plays within the accounting literature, the Fraud Triangle does not seem to have permeated the tax compliance literature, particularly the relevant legal literature.

For example, a search in “Secondary Materials” in Lexis for “‘fraud triangle’ w/50 tax!” turns up only one article, which is not a tax article but does cite a 2006 Tax Notes article authored by three CPAs. That article is James A. Tackett et al., “A Criminological Perspective of Tax Evasion” (paywalled). Yet, the Fraud Triangle should not be overlooked by scholars outside of accounting. It provides a powerful tool with which to conceptualize tax evasion. And, as discussed below, it helps provide a framework that both supports the deterrence model and allows other factors to coexist with deterrence.

The Fraud Triangle and the Fraud Diamond

The Fraud Triangle derives from three factors that criminologist Donald R. Cressey originally identified in a 1951 article in the Journal of Accountancy, “Why Do Trusted Persons Commit Fraud?: A Social-Psychological Study of Defalcators.” As discussed in his 1951 article and his 1953 book, “Other People’s Money: A Study in the Social Psychology of Embezzlement,” Cressey developed the factors that became the Fraud Triangle out of in-depth interviews with inmates who had been convicted of trust violations such as embezzlement. The three factors were labelled the “fraud triangle” by Steve Albrecht in the early 1990s. The elements of the Fraud Triangle, as discussed by Albrecht and others, are “perceived pressure” (usually financial), “perceived opportunity” to commit the fraud, and “rationalization” that the actions are justifiable or appropriate in the context of the situation. Albrecht and his coauthors of a 1979 KPMG study of convicted perpetrators of fraud “found that the decision to commit fraud is determined by the interaction of all three forces.” Continue reading “Tax Evasion and the Fraud Diamond”

Wesley Snipes and His Offer-in-Compromise

By Sam Brunson

By nicolas genin from Paris, France [CC BY-SA 2.0], via Wikimedia Commons
You may remember about a decade ago, when Wesley Snipes was sentenced to three years in prison for willfully failing to file tax returns. During his sentencing, Snipes apologized for his “mistakes and errors,” and promised that “[t]his will never happen again.”

He did not, however, mention taxes in his apology. And apparently, the “this” that he promised would never happen again was not failing to pay his taxes.

Yesterday, the Tax Court issued an opinion holding that the IRS did not abuse its discretion in denying Snipes’s offer-in-compromise. Continue reading “Wesley Snipes and His Offer-in-Compromise”

Trump, Tax Fraud, and the Statute of Limitations

By Sam Brunson

Photo by Takver. CC BY-SA 2.0

By now I’m sure you’ve read the New York Times story about the Trump gift tax evasion (or, if not that story—which is really, really long—at least a summary of it). There is a lot in there, and I suspect it’ll inspire more than a couple posts here, but I wanted to lead off with the statute of limitations.

Because let’s be real: I’ve always thought of the statute of limitations as being three years or, if you substantially understate your gross income, six years, unless you don’t file a return, in which case it runs forever until you file a return. Since most of the alleged fraud occurred in the 1990s or earlier, even the longer statute would be long passed.

It turns out that my mind entirely skipped over section 6501(c).[fn1] Section 6501(c) says that if you file a “false or fraudulent return,” there is no statute of limitations. The IRS can go in and assess a tax deficiency, with interest and penalties, whenever it wants. Continue reading “Trump, Tax Fraud, and the Statute of Limitations”