Friday, April 20, 2012
As most taxpayers are aware, the failure to comply with the tax law can lead to civil and criminal tax penalties. But tax noncompliance can result in other consequences as well, at both the federal and state levels. Collateral sanctions for tax noncompliance, which are imposed by government agencies other than the taxing authority, range from denial of hunting licenses, to revocation of drivers’ or professional licenses, to, as in the recent Supreme Court case Kawashima v. Holder, deportation of taxpayers from the United States. While criminal law scholars have written dozens of articles on the collateral consequences of criminal convictions, tax scholars and government officials have virtually ignored collateral tax sanctions, even though their use by the federal and state governments is growing.
This Article offers the first comprehensive analysis of collateral consequences in the taxation context. In contrast to the overwhelmingly negative portrayal of collateral consequences in the criminal law literature, this Article shows that collateral tax sanctions may offer previously unappreciated social benefits. Collateral tax sanctions can promote voluntary tax compliance more effectively than formal tax penalties alone, especially if governments increase public awareness of collateral tax sanctions. Governments should therefore embrace collateral tax sanctions as a means of enforcement, and taxing authorities should affirmatively publicize these sanctions.
After considering the effects of collateral tax sanctions under each of the predominant theories of voluntary compliance, I propose principles that governments should consider when designing collateral tax sanctions. These principles suggest that recent state initiatives to revoke recreational and professional licenses from tax delinquent individuals will likely promote voluntary compliance. However, whether the Supreme Court’s decision in Kawashima, in which the majority voted to uphold the deportation of two lawful permanent residents who filed false tax returns, will have a positive effect on voluntary compliance is far less certain. I conclude by suggesting additional tax offenses that could be subject to collateral tax sanctions and additional benefits that governments could revoke, or limit, to foster voluntary compliance.