Five Key Things Non-Tax- Administrators Should Know about Tax Administration and Its Policy Implications Harley Duncan Federation of Tax Administrators September 29, 2006

5 Key Things: Overview TA is responsible for compliance continuum TA necessarily involves line drawing TA has responsibility to protect the public fisc TA has a policy role with respect to the tax system TA respects processes

Compliance Continuum Runs gamut from voluntary compliance to enforced compliance Requires active involvement in tax law formulation and implementation Emphasis on simplicity, clarity Emphasis on availability of information to and from relevant parties Requires adequate tools -- authority, verifiable records, penalties, etc. Clear law decreases intrusiveness of TA and improves voluntary compliance

Line Drawing TA involves interpretation, judgments and translation from general to specific Based to extent possible on expressed intent, precedent and common understandings Any line creates aggrieved parties Established processes for dealing with grievances

Protection of the Fisc Probably most misunderstood or ‘under-appreciated’ role Interpretations/judgments will favor taxation and disfavor preference System of voluntary compliance/self-rendering requires same General public not capable of prosecuting case that law is being misapplied Adds stress to the system that needs to be understood

Policy Role Not policy eunuchs -- In most states, TA is primary executive branch policy adviser May have a perception as a partisan role, but data and analysis should be open to all Policy preferences to maximum extent should be principle-based

Respect for Processes Involves disputes, guidance and other matters of interpretation and application Established processes should ensure full consideration of facts, understanding of precedents and necessary interrelationships Insures consistent application across taxpayers

Policy Implications Clarity, simplicity and consideration of enforcement will reduce intrusiveness Argues for involvement/consideration of TA throughout policy development Will be stress in the system and some adversarial matters Cooperation can minimize stress Nature of system requires quick and fair adjudication processes