Homage to information returns.

(27) Joseph M. Dodge & Jay A. Soled, Inflated Tax Basis and the Quarter Trillion-Dollar Revenue Question, 2005 TNT 15-23 (Jan. 24, 2005).

(28) I.R.C. [section][section] 6031(b), 6037(b).

(29) I.R.C. [section][section] 703, 1367.

(30) In years a tax partnership or S corporation experiences losses, loss limitation rules that are tied to a taxpayer's basis in that enterprise may be triggered. I.R.C. [section][section] 704(d), 1366(d)(1)(A).

(31) Notice that somewhat similar reporting burdens are already placed on C corporations with respect to liquidations, mergers, and other capital changes. I.R.C. [section] 6043; Treas. Reg. [section] 1.6043-4 (1960). Consider, too, that when it comes to compliance in the sphere of partnership taxation, Professor Lawrence Lokken has made the following observation:

A large number of partnerships thus seem to be governed by what might

be called an "intuitive subchapter K." Taxpayers and tax advisers who

want to comply account for partnership transactions in ways that are

consistent with their conceptions of the basic aims of subchapter K;

others account as adventurously as they believe the IRS is likely to

tolerate. IRS auditors challenge partnership accounting only if it

seems to be seriously out of whack. No one has the ability, resources,

and incentive to figure out exactly what the rules require.

Lawrence Lokken, Taxation of Private Business Firms: Imagining a Future Without Subchapter K, 4 FLA. TAX REV. 249, 252 (1999).

(32) I.R.C. [section] 6019.

(33) This lack of mechanisms is in stark contrast to other areas of the Code in which third-party information returns are commonplace. See supra note 3.

(34) See Tax Gap Testimony, supra note 1, for the proposition that in the absence of withholding and information return issuance, taxpayer compliance suffers.

(35) See Mitchell Gans & Jay A. Soled, Reforming the Gift Tax and Making It Enforceable, 87 B.U. L. REV. 759 (2007).

(36) I.R.C. [section] 2503(b), (e).

(37) This reporting obligation could also be extended to other entities, such as partnerships and corporations in which donors have the opportunity to make indirect gifts. To limit the administrative burden associated with this augmented attribution rule, it would only apply in those instances in which the taxpayer directly or constructively (via attribution rules) owned more than 50% of the entity in question.

(38) I.R.S. Notice 97-34, 1997-1 C.B. 422. For tax years beginning in 2006, the reporting threshold amount is $12,760 in the case of gifts from foreign corporations and foreign partnerships. Rev. Proc. 2005-70, 2005-47 I.R.B. 979.

(39) I.R.C. [section] 6039F(a).

(40) I.R.C. [section] 6048(a).

(41) If the recipient of a foreign gift fails to report it, Congress imposes a penalty of 5% of the amount of the gift for each month that the failure continues, up to a maximum penalty of 25%. I.R.C. [section] 6039F(c)(l)(B). A somewhat similar penalty applies in those cases in which a U.S. taxpayer or resident alien fails to report the receipt of a foreign trust distribution. See I.R.C. [section] 6677(a)(1) (showing that the penalty is equal to 35% of the gross reportable amount; and if any failure to file continues for more than ninety days after the day on which the Service mails a notice of failure to file to the person responsible for the penalty, that person must pay an additional penalty of $10,000 for each thirty-day period (or fraction thereof) during which the failure continues, not to exceed the gross reportable amount).

(42) Stephen J. Dubner & Steven D. Levitt, Filling in the Tax Gap: Why Americans Should Be Clamoring for the IRS to Do More Audits, Not Fewer, N.Y. TIMES MAG., Apr. 2, 2006, at 26 (discussing how Service research officer John Szilagyi led the crusade to get this oversight mechanism into place).

(43) Id.

(44) See supra note 3.

(45) See Dennis L. Belcher & Mary Louise Fellows, Report on Reform of Federal Wealth Transfer Taxes Task Force on Federal Wealth Transfer Taxes, 58 TAX LAW. 93, 122-24 (2004) (pointing out the need to ask donors a question on the Form 1040 but overlooking the need to ask the same question to donees).

(46) See generally Spies v. United States, 317 U.S. 492, 499 (1943) (expressing the opinion that passive neglect of a statutory requirement is usually less offensive than active violation of a statutory duty); Brian J. Sullivan & Jessica L. Thorn, Tax Violations, 43 AM. CRIM. L. REV. 991 (2006) (describing the different states of mind necessary to trigger a criminal violation).

(47) See PAUL EKMAN, TELLING LIES: CLUES TO DECEIT IN THE MARKETPLACE, POLITICS, AND MARRIAGE 29 (1992) ("[L]iars may feel less guilt about concealing than falsifying."). The same distinction is often made in the fraud context. See, e.g., RESTATEMENT (THIRD) OF PROPERTY: WILLS AND OTHER DONATIVE TRANSFERS [section] 8.3 cmt. j (2003) (indicating that, as a general rule, a finding of fraud requires an active misrepresentation rather than passive concealment).

(48) I.R.C. [section] 6041A(a).

(49) See Treas. Reg. [section][section] 1.6041-3(p)(1) (as amended in 2006), 1.6049-4(c)(1)(ii)(A) (as amended in 2006) (noting the rules that state that this reporting requirement does not extend to corporate service providers). But see Treas. Reg. [section] 1.6041-1(d)(2) (as amended in 2006) (stating that with respect to professional fees (e.g., medical and legal services), a reporting requirement applies even if the service provider is a corporate entity).

(50) See INTERNAL REVENUE SERV., DEP'T OF THE TREASURY, NATIONAL TAXPAYER ADVOCATE 2005 ANNUAL REPORT TO CONGRESS 394-96 (2005), available at www.irs.gov/advocate/article/0,,id=152735,00.html [hereinafter NATIONAL TAXPAYER ADVOCATE REPORT] (outlining the details of why and how Congress should institute this reform).

(51) I.R.C. [section] 163(h)(2)(D).

(52) I.R.C. [section] 163(h)(3).

(53) Treas. Reg. [section] 1.6050H-2(a)(2)(iii) (as amended in 2000).

(54) Tax Gap Recommendations, supra note 26, at 13.

(55) Id.

(56) I.R.C. [section] 164(a)(1).

(57) Treas. Reg. [section] 1.164-3(b) (as amended in 1964).

(58) Treas. Reg. [section][section] 1.164-2(g) (as amended in 1984), 1.164-4(a) (as amended in 1964).

(59) Tax Gap Recommendations, supra note 26, at 8.

(60) Id.

(61) Id. at 9.

(62) See, e.g., Dustin Stamper, House Small-Business Panel Attacks Everson, Olson for Reporting Proposals, 2006 TNT 66-2 (Apr. 6, 2006). The article reports:

Members of the House Small Business Committee on April 5 loudly

registered their disgust with both IRS Commissioner Mark Everson and

National Taxpayer Advocate Nina Olson over several new small-business

reporting proposals. An often animated committee Chair Donald A.

Manzullo, R-Ill., spared no adjectives, accusing a "disgraceful" IRS

of "poor scholarship" on a "lousy" study, telling Olson and Everson

that the proposals "stink" and are "stupid."

Id.

(63) See supra note 1.

(64) See CAPITAL GAINS TAX GAP, supra note 25.

(65) See Tax Gap Recommendations, supra note 26.

(66) Leandra Lederman, The Interplay Between Norms and Enforcement in Tax Compliance, 64 OHIO ST. L.J. 1453, 1469 & n.2 (2003); Joshua D. Rosenberg, The Psychology of Taxes: Why They Drive Us Crazy, and How We Can Make Them Sane, 16 VA. TAX REV. 155, 197-202 (1996); Lars P. Feld & Bruno S. Frey, Tax Evasion in Switzerland: The Roles of Deterrence and Taxpayer Morale (Inst. for Empirical Res. in Econ., Working Paper No. 284, 2006), available at http://www.iew.unizh.ch/wp/iewwp284.pdf.

(67) See CAPITAL GAINS TAX GAP, supra note 25 ("Now, many firms provide basis information as a courtesy to their customers--both in regular account statements and in annual information reports.").

(68) See Tax Gap Recommendations, supra note 26, at 8 ("An information reporting requirement would impose administrative burdens on governmental entities that may outweigh the compliance benefits.").

(69) Tax Increase Prevention and Reconciliation Act of 2005, Pub. L. No. 109-222, [section] 511(a), 120 Stat. 345, 364-65 (2006).

(70) I.R.C. [section] 3402(t)(1).

(71) Cong. Budget Office, CBO Estimates Cost of TIPRA, 2006 TNT 108-22 (June 6,2006).

(72) Donald C. Alexander, The Present and the Future: Thoughts and Guesses, 114 TAX NOTES 73 (Jan. 8, 2007) ("While the legislative history of the provision contends that it 'balances the goal of greater compliance with concerns regarding administrative burdens of imposing withholding,' the revenue estimate demonstrates no such balance.").

(73) See Tax Gap Testimony, supra note 1, at 27-32 (pointing out that were tax basis information reported, the Service would likely have a difficult time--at least initially--handling this large volume of data).

(74) See Treasury Inspector Gen. for Tax Admin., TIGTA Says Schedule K-1 Matching Program Can Be Further Improved, 2006 TNT 191-16 (Oct. 3, 2006); see also David Cay Johnston, Affluent Avoid Scrutiny on Taxes Even as I.R.S. Warns of Cheating, N.Y. TIMES, Apr. 7, 2002, at 1A ("'Another reason is the widespread knowledge among sophisticated taxpayers that the I.R.S. has never matched income from partnerships, known as K-1 income, to individual tax returns,' said Jerry Curnutt, a retired I.R.S. expert on partnerships.").