Thursday, September 30, 2004

Deborah Schenk (NYU) presents Optimal Deterrence and Corporate Tax Shelters today at noon at Florida State and tomorrow at noon at Florida. Here is the abstract:

Over the last decade corporations have increasingly used sophisticated tax shelter techniques to sharply reduce corporate income. While Congress has bemoaned this state of affairs, it has adopted very few provisions that might be effective in shutting them down. The IRS has aggressively sought out shelters, but has been stymied by the difficulty in locating the users and the lack of effective enforcement tools. This paper applies optimal deterrence theory to the tax shelter problem. It uses evidence from cases and press reports to show that corporate tax shelters users are utilizing a cost benefit analysis for decisionmaking. That calculus illustrates that the odds of detection are low and the odds of a penalty are even lower. The tax benefits are so low that they swamp the costs. The paper explores what kind of structure optimal deterrence theory would lead to and whether such a structure is feasible.