More than any other area of the criminal law, enforcement of the tax laws is associated with a specific date: April 15. Over the next two weeks, accountants will be working feverishly to complete their clients’ tax returns, millions of Americans will be filing their returns and, if history is any indication, the Tax Division of the Department of Justice will be issuing press releases touting its recent successes in identifying and punishing tax cheats. While academic research demonstrates that the Tax Division issues a disproportionate number of press releases in the two weeks leading up to “Tax Day,” this begs the question of whether the government’s annual P.R. campaign has any impact on taxpayers’ behavior.
In a 2010 article published in the Virginia Tax Review, Professors Joshua Blank and Daniel Levin analyzed 782 press releases issued by the Tax Division between 2003 and 2009 announcing civil or criminal enforcement events. Blank and Levin concluded that the Tax Division issued 58% more press releases between February 1 and April 15 than the rest of the year; 71% more between March 1 and April 15 than the rest of the year; and a whopping 128% more between April 1 and April 15 than the rest of the year.
While some of the increase may be driven by enforcement efforts tied to the impending expiration of the statute of limitations, which runs 6 years from the date the return was filed, Blank and Levin persuasively argue that the significant uptick in press activity is a deliberate effort to encourage compliance and deter potential violations. But are taxpayers more likely to comply with their obligations if they are bombarded with news that the government is actively enforcing the tax laws? The answer likely depends on the nature of the press coverage generated.
Assuming the vast majority of taxpayers fully intend to comply with their obligations voluntarily and that some inveterate tax cheats will engage in misconduct even if there is a widespread perception that the IRS aggressively pursues and punishes violators, the deterrent effect of the IRS’s press campaign will fall on a relatively small percentage of taxpayers who make a cost-benefit assessment of whether to comply with their obligations. If the press coverage conveys the impression that the government is aggressively enforcing the tax laws, it may well deter these potential tax violators and thereby enhance voluntary compliance. If, on the other hand, the heightened press activity surrounding April 15 creates a perception that only egregious tax cheats are caught and punished, average citizens might think it is unlikely that comparatively minor infractions will be detected or prosecuted. Indeed, other research suggests that the certainty of being caught serves as a greater deterrent than the sanctions imposed.
Finally, Professors Blank and Levin question whether the government should engage in a strategy of creating the misimpression of widespread enforcement. While that may be an interesting moral question to ponder, given its limited resources, the government is often left with no choice but to leverage its enforcement budget through widespread publicity of relatively few prosecutions.