The Hidden Tax Game

William & Mary Business Law Review William & Mary Business Law Review

The Hidden Tax Game The Hidden Tax Game

THE HIDDEN TAX GAME

Taxation is not just a legal duty; it is a game, and the best players always win. While governments rely on laws and penalties to enforce compliance, corporations, high-net-worth individuals, and elite tax strategists exploit loopholes, turning complexity into opportunity. This Article argues that tax avoidance is not a flaw in the system, but an expected outcome. Modern tax law does not just permit avoidance; it actively encourages it. The more intricate the rules, the more valuable it becomes to manipulate them.

Using game theory as an analytical lens, this Article reframes taxation as a high-stakes competition, where strategic players respond to incentives, enforcement gaps, and shifting regulatory landscapes. Avoidance is not an anomaly but a rational reaction to the system’s design. Governments, rather than serving as neutral enforcers, often reinforce the cycle with reactive policies that merely push tax planners toward new strategies. Those with the resources to navigate the system benefit, while ordinary taxpayers bear the burden.

Instead of increasing enforcement or making minor adjustments, this Article argues for a fundamental restructuring of tax law to change the rules of the game. By eliminating the conditions that make avoidance the smartest move through tax simplification, real-time taxation, and alternative revenue models, governments can realign incentives so that compliance becomes the optimal strategy. This approach shifts the focus from punishment to systemic reform, offering a new perspective on tax policy that targets avoidance at its root.

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INTRODUCTION ............................................................................ 661

THEORY .................................................................................... 666

A. Understanding Taxpayer Behavior Through Game

Theory .................................................................................. 666 B. The Nash Equilibrium of Tax Compliance ....................... 669 C. Beyond Nash Equilibrium: The Role of Uncertainty in

Tax Compliance................................................................... 672

A. The Cost-Benefit Limitations of Enforcement ................... 681 B. The Complexity of Tax Law as a Tool for Avoidance ....... 683 C. The Adaptability of Avoidance Strategies ......................... 685 D. The Welfare Theorems and Tax System Distortions ........ 687 E. Interim Summary .............................................................. 692

AVOIDANCE .............................................................................. 693

A. How Governments’ Tax Policies Reinforce Avoidance

Through Policy Choices ...................................................... 693 B. Structural Reforms to Realign Compliance Incentives .... 698

IV. TECH-DRIVEN TAX REFORM .................................................. 709

A. Real-Time Taxation for Individuals and Businesses ....... 712 B. Destination-Based Taxation for Corporations .................. 717

CHANGE THE RULES ................................................................. 721

Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.

Judge Learned Hand, Helvering v. Gregory, 69 F.2d 809,

810 (2d Cir. 1934)

Roll the dice and take your chances. That is how the tax system feels for most people, who attempt to follow the rules as written, perhaps cutting a corner here and there but largely staying within the lines. Wages are taxed before they even hit a paycheck, and audits loom as a distant but real threat.1 Compliance is assumed, penalties are feared, and the game appears fair. But not everyone plays by the same rules. For those with the right advisors, lawyers, and accountants, taxation is not about rolling the dice—far from it.2 The most sophisticated players do not simply follow the rules. They master them, exploit their gaps, and turn them into opportunities.3 Tax law does not merely allow this. It rewards it.4

This perspective, emphasized by Judge Learned Hand’s quote in the epigraph, highlights a fundamental truth about tax law: it is not merely a system of revenue collection but a strategic framework that enables and incentivizes taxpayers to minimize their obligations within legal bounds.5

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Governments impose taxes, taxpayers ostensibly comply, and enforcement mechanisms supposedly deter violations.6 However, this oversimplified view assumes compliance is a legal obligation and civic duty, with non-compliance attributed to either moral failure (for example, willful evasion) or enforcement deficiencies (for example, insufficient audits and penalties).7

In reality, the system itself fosters avoidance. While most taxpayers face rigid withholding and strict oversight, corporations, high net worth (HNW) individuals, and their expert tax strategists treat taxation as an optimization problem.8 They do not

merely comply with the law but actively navigate its structure to reduce liabilities. Through complex structuring, jurisdictional arbitrage, and exploitation of legal loopholes, these actors minimize their tax burdens, not through illegality, but by capitalizing on the system’s design.9

To fully understand why tax avoidance is deeply embedded in modern taxation,10 and to conceptualize this dynamic more accurately, this Article applies game theory as an analytical framework.11

Traditional tax policy incorporates Gary Becker’s deterrence framework, which builds on Jeremy Bentham’s utilitarian approach to punishment.12 Both assume that compliance is driven by a combination of moral obligation and deterrence, where individuals weigh the risks of punishment against the benefits of

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non-compliance.13 This perspective presents a simplistic binary between honest taxpayers and deliberate evaders:

1.(cid:3)Honest taxpayers comply with the law as a matter

of duty.14

2.(cid:3)Deliberate evaders violate the law when the benefits of non-compliance outweigh the risks of detection and punishment.15

However, this Article contends that this approach overlooks the strategic decision-making inherent in the legal framework of the tax system, and that taxpayers do not merely choose between compliance and non-compliance; they optimize within the rules, leveraging legal gray areas to achieve the most advantageous outcomes. This is examined through the lens of game theory, where taxation functions as a multiplayer strategic game with established rules, participants, and incentives.

Hence, for corporations and HNW individuals, tax planning is not a question of morality or civic duty, but of game optimization,16 and the most skilled players do not evade taxes outright; instead, they structure their affairs strategically to minimize liabilities while remaining fully within the bounds of the law.17

Governments are traditionally perceived as neutral regulators of the tax system, ensuring compliance among individuals and corporations.18 In practice, however, they act as reactive players in a game they struggle to control.19 Rather than enforcing a selfsustaining system, tax authorities chase evolving tax strategies,

attempting to close loopholes only to see new ones emerge.20 This cycle follows a predictable sequence:

1.(cid:3)Legislators introduce new tax laws aimed at curbing

avoidance.21

2.(cid:3)Corporations and HNW individuals restructure their tax positions to exploit newly created legal gray areas.22

3.(cid:3)Regulators respond with additional rules, inadvert-

ently creating new loopholes.23

This regulatory cycle highlights the limitations of enforcement-driven solutions. Each legislative attempt to tighten tax laws generates unintended gaps, offering sophisticated actors new avenues for avoidance.24 As long as the tax system remains structurally complex and incentive-driven, enforcement will always be reactive rather than preventative.

This raises a fundamental question: why does tax avoidance persist despite stronger enforcement? The answer lies in the strategic nature of tax compliance. Taxpayers do not passively follow laws; they actively adapt, optimize, and respond to shifting regulations.25 Rather than treating taxation as a rigid legal duty, it operates as a strategic game, one where players continuously adjust their approaches based on evolving rules, enforcement risks, and financial incentives.

To fully grasp this dynamic, Part I applies game theory to taxation, illustrating how taxpayer behavior is shaped by the strategic interactions between individuals, corporations, and regulatory authorities.

This Article proceeds as follows: Part I establishes the theoretical foundation of tax compliance as a strategic game,

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identifying key players and analyzing their incentives, behaviors, and interactions. Part II illustrates how tax laws encourage avoidance rather than deter it, with an analysis of the Tax Cuts and Jobs Act (TCJA)26 and multinational corporate tax strategies. Part III examines why closing loopholes is ineffective in the long term, demonstrating how regulatory responses perpetuate a cycle of reactive policymaking. Part IV proposes structural reforms to realign compliance incentives, shifting enforcement from a reactive challenge to a systemic design that makes compliance the most rational choice. Finally, the Conclusion summarizes key findings, offering a comprehensive assessment of the implications for tax policy and enforcement.

By exposing the systemic incentives that drive tax avoidance, this Article challenges traditional tax scholarship and offers a novel framework for rethinking taxation in alignment with economic and legal realities. Ultimately, addressing tax avoidance requires more than enforcement adjustments; it demands structural changes that realign incentives.27 Without fundamental reform, tax avoidance will remain entrenched, rather than an anomaly, while reinforcing inequities and undermining compliance.

A.(cid:3)Understanding Taxpayer Behavior Through Game Theory

Traditional tax analysis focuses on legal doctrines, economic efficiency, and public policy objectives such as wealth redistribution and economic regulation.28 While these perspectives are not only valuable but also critical, they do not fully explain how

sophisticated taxpayers interact with the system. Taxation is not merely a legal obligation or an economic tool. It is a strategic game governed by rules, incentives (or payoffs), and rational decision-making. All these fit into the framework of game theory.29

Conventional tax policy assumes compliance is a binary

choice:30

1.(cid:3)Taxpayers either comply with the law, or 2.(cid:3)They violate it when the benefits of non-compliance

outweigh the risks of enforcement.

This framework is inadequate. Many taxpayers do not simply choose between compliance and evasion. Instead, they optimize within the legal system by adjusting their strategies in response to enforcement mechanisms and tax code complexities.31 Game theory provides a more precise analytical framework for understanding tax behavior.32

Within this framework, taxation functions as a dynamic

strategic interaction among multiple players where:

(cid:120)(cid:3)The Rules (Tax Laws): Define permissible conduct

and shape the available strategic options.

(cid:120)(cid:3)The Players (Taxpayers, Corporations, and Tax Authorities): Select strategies that maximize financial outcomes.

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(cid:120)(cid:3)The Payoff Structure (Tax Burdens vs. Benefits): Influences behavior based on the expected financial return of compliance versus optimization.

(cid:120)(cid:3)The Enforcement Mechanisms (Audits, Penalties, and Regulations): Affect decision making but do not eliminate strategic tax behavior.

Hence, for many taxpayers (e.g., HNW individuals and corporations), tax compliance is not just a matter of deterrence and morality, but rather a strategy that leverages regulatory nuances to minimize liabilities while ensuring formal compliance.33 This distinction is critical. Theodore Seto classifies this behavior as lawful sheltering or Type II avoidance.34 He distinguishes it from simple evasion by noting that sheltering involves changing real economic behavior to exploit the rules of the system.35 While evasion relies on hiding facts from the authorities, sheltering relies on the system itself to validate the tax reduction.36 This confirms that the most successful players do not ignore the law but rather master it.37

Experimental evidence supports this game-theoretic approach, as empirical studies have found that taxpayers respond differently to identical economic incentives based solely on whether behavior is labeled as “legal avoidance” or “illegal evasion.”38 Research demonstrates that labeling tax minimization as illegal reduced such behavior by over 50 percent when no penalties existed, showing how legal classifications create different moral costs for otherwise identical actions.39

This ongoing interaction between taxpayers and tax authorities does not create stability; rather, it results in a strategic standoff where neither side can fully control the system.40 To

understand why tax avoidance persists despite increased enforcement, we turn to Nash Equilibrium and other game-theoretic principles, which shows how taxpayer behavior stabilizes in response to incentives rather than enforcement.41

B.(cid:3)The Nash Equilibrium of Tax Compliance

To better understand how this process unfolds, it is essential to explore how game-theoretic principles, such as rational choice,42 Nash equilibrium,43 and information asymmetry,44 shape taxpayer behavior.45 These principles illustrate why compliance is not a static decision, but a dynamic strategy shaped by tax laws, incentives, and enforcement uncertainty.

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As explained before, most sophisticated taxpayers do not simply choose between compliance and evasion; the reality in this case is simply not zero or one. Instead, they adjust their tax positions dynamically, optimizing within legal bounds.46 This behavior falls into four distinct strategic approaches, forming the basis of the Taxpayer Decision Matrix.

Taxpayer Strategy

Full Compliance

Strategic Optimization

Aggressive Avoidance

Non-Compliance (Evasion)

Description Paying the correct tax amount without seeking reductions Utilizing legal tax planning to reduce liabilities while staying within regulations

Exploiting gray areas of tax law to lower liabilities, risking scrutiny

Engaging in illegal practices such as underreporting income or falsifying records

Example

A salaried employee filing a straightforward tax return

A corporation using offshore tax structures to minimize taxable income

A high-net-worth individual setting up shell companies to defer tax indefinitely

A business owner concealing revenue through cash transactions

This multi-tiered decision framework better explains how sophisticated taxpayers interact with the tax system. Unlike simple compliance models that assume taxpayers follow the law

as a duty, game theory recognizes that actors respond strategically to regulatory threats, incentives, and peer behavior in an attempt to maximize their financial outcomes.47(cid:3)(cid:3)

These strategic approaches do not emerge by accident. They represent a stable equilibrium between taxpayers and tax authorities, where both sides continuously adapt their behavior in response to the other.48 This dynamic is best understood through the concept of Nash Equilibrium,49 which explains why neither side can fully control the system.50

In taxation, Nash Equilibrium emerges when:

(cid:120)(cid:3)Taxpayers optimize their strategies within legal

limits while weighing enforcement risks.51

(cid:120)(cid:3)Tax authorities adjust enforcement intensity based

on expected taxpayer behavior.52

(cid:120)(cid:3)Governments balance compliance incentives with broader policy goals, such as economic growth and revenue maximization.53

As a result, taxation reaches a strategic stalemate where no player can unilaterally change their position without facing

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countermeasures. When governments increase enforcement, taxpayers develop new planning techniques to minimize liability.54 When enforcement weakens, non-compliance spreads as a rational response to reduce detection risk.55

Though not incorrect, this perspective is perhaps too simplified and incomplete, as it does not fully capture the complexity of tax compliance. While Nash Equilibria serve as a foundational concept in tax compliance modeling, they fail to account for the iterative nature of taxpayer decision-making, the infinite dynamics of each player, and the lack of complete information available to all participants.56 By integrating Bayesian updating mechanisms, a more accurate representation emerges, one that reflects the dynamic interactions between tax authorities and strategic taxpayers who adjust their actions based on new information.

C.(cid:3)Beyond Nash Equilibrium: The Role of Uncertainty in Tax

Compliance

Traditional tax compliance models often calculate Nash Equilibria in pure strategies, demonstrating how taxpayers and tax authorities respond to enforcement probabilities and penalties.57 These models assume that taxpayers make compliance decisions based on fixed detection probabilities and penalty structures.58 As stated before, while this provides a useful baseline for understanding strategic interactions, it does not fully account for the uncertainty and adaptive learning that characterize real-world tax compliance. These models typically assume a finite number of players, where individual actions do not necessarily influence

others in meaningful ways.59 In reality, tax compliance involves an infinite number of interacting players, where the actions and reactions of one taxpayer can indirectly influence enforcement policies applied to all.60

A Bayesian Nash Equilibrium (BNE) framework addresses this limitation by incorporating incomplete information and belief updating.61 Unlike pure strategies, where taxpayers assume enforcement probabilities are static, Bayesian models account for interactions among an infinite number of players.62 As recent research demonstrates, equilibrium still exists in these settings, but strategic uncertainty increases as players must make decisions based on limited observations of the broader and much more complex tax environment.63 This explains why static enforcement strategies often fail, as taxpayers strategically react to shifting incentives.64

Tax compliance operates under fundamental uncertainty, where neither side possesses perfect knowledge of the other’s decision-making process.65 Taxpayers must operate without full certainty regarding audit probability, penalty enforcement, vague regulatory interpretations, or shifts in regulatory priorities.66 They rely on indirect signals, such as public enforcement trends, legislative changes, and economic conditions, to estimate the likelihood

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of audits or policy shifts.67 Governments, in turn, lack precise knowledge of each taxpayer’s risk tolerance, true income, longterm business strategy, and willingness to engage in aggressive tax planning.68 Since enforcement resources are limited, authorities must determine where to focus audits and regulatory actions based on incomplete data, relying on short-term strategies, as research often indicates.69

This strategic environment, where players make decisions under conditions of constant uncertainty, aligns more closely with Bayesian Games than with classical game theory models that assume perfect information. In a Bayesian framework, taxpayers belong to different categories based on their risk preferences.70

Some taxpayers are risk-averse and comply fully to avoid penalties.71 Others are risk-neutral and engage in strategic tax

planning within legally gray areas.72 A third group consists of riskseeking taxpayers who aggressively minimize tax liabilities despite enforcement risks.73 Governments do not know each taxpayer’s exact type but form probabilistic expectations based on historical data, observed behavior, and compliance trends.74 Taxpayers also lack direct knowledge of the government’s precise enforcement strategy and instead make informed guesses based on available information.75

This interaction leads to a BNE, where both sides select strategies based on their beliefs about the other’s behavior rather than on complete information.76 Unlike the standard Nash Equilibrium, which assumes that all players fully understand the strategies available to others, BNE accounts for the fact that tax compliance decisions are made in an environment where enforcement intensity, audit selection, and taxpayer behavior remain at least partially unknown.77 This more accurately reflects the strategic uncertainty inherent in real-world tax enforcement and provides a stronger theoretical foundation for analyzing taxpayer behavior.

Empirical research confirms that tax compliance decisions are shaped by strategic uncertainty rather than fixed probabilities.78 Experimental studies have shown that auditors systematically overestimate non-compliance risk, leading to excessive audit rates, while taxpayers respond not to actual audit probabilities but to their subjective expectations of enforcement.79 This misalignment

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results in inefficient enforcement strategies, where authorities react to perceived taxpayer dishonesty rather than objective compliance trends. Moreover, evidence suggests that compliance decisions are not made in isolation but evolve in response to feedback loops between enforcement intensity and taxpayer behavior.80 These findings support the argument that tax compliance cannot be fully explained through classical deterrence models; instead, it operates within an iterative strategic environment where both players continuously update their beliefs based on incomplete information. As a result, rather than achieving stability, enforcement policies often create self-perpetuating cycles of adaptation, reinforcing avoidance rather than eliminating it.

Taxpayer Type

Compliance Behavior

Perceived Audit Risk

RiskAverse

RiskNeutral

RiskSeeking

Fully complies with tax obligations to avoid audits and penalties

Engages in legal tax planning, optimizing deductions and deferrals

Utilizes aggressive avoidance strategies, exploiting legal gray areas or risking evasion

High; assumes enforcement is strict and penalties are severe Moderate; weighs benefits of avoidance against audit likelihood Low; assumes enforcement is inconsistent or avoidance strategies can outmaneuver authorities

Government Ideal Response

Rarely audited; considered low enforcement priority

Monitored; may face selective audits if deductions appear excessive

Targeted for audits and enforcement actions due to high-risk profile

This Taxpayer Decision Matrix (Table 2) illustrates how different types of taxpayers respond strategically to enforcement risks and compliance costs. However, the complexity of this interaction is heightened by uncertainty and information asymmetry, which significantly impact both taxpayer behavior and government enforcement strategies.81 Unlike a traditional strategic game where all players have full knowledge of the rules and potential outcomes, taxation operates in an environment where neither side possesses complete information.82

For taxpayers, uncertainty is almost always a factor.83 Even risk-neutral or risk-seeking taxpayers must estimate enforcement intensity based on indirect signals, such as prior audit rates, highprofile enforcement cases, and government rhetoric on tax avoidance.84 This uncertainty forces taxpayers to allocate resources not only toward compliance, and away from their business and/or economic growth, but also toward defensive tax planning,85 further complicating the system.86

From the government’s perspective, tax enforcement suffers from asymmetric information regarding individual and corporate income, hidden assets, and aggressive tax planning techniques.87

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Authorities rely on reported income, voluntary disclosures, and selective audits, yet taxpayers continuously adapt, making enforcement inherently reactive rather than proactive.88 The inability to perfectly monitor tax behavior results in a compliance gap, where revenue losses persist despite increased enforcement efforts.89

This uncertainty and asymmetry intensify the inefficien-

cies of the tax system, leading to several adverse effects:

1.(cid:3)Deadweight Loss: The additional compliance and enforcement costs divert resources away from productive economic activity. Instead of investment in innovation or growth, businesses and HNW individuals allocate capital toward tax professionals, legal structuring, and complex avoidance mechanisms.90

2.(cid:3)Revenue Loss: The inability to perfectly enforce tax laws results in persistent tax gaps, as avoidance strategies allow some taxpayers to minimize liabilities beyond what was intended by policymakers.91 3.(cid:3)Economic Distortions: Tax avoidance behaviors shape corporate decision-making, often prioritizing tax efficiency over productive investments. For instance, multinational corporations may shift profits to lowtax jurisdictions not for operational reasons but to exploit tax arbitrage opportunities.92

4.(cid:3)Higher Costs of Compliance and Enforcement: As governments attempt to close loopholes, the tax system becomes increasingly complex, requiring more resources for enforcement and compliance. Paradoxically, the more intricate the tax code, the greater

the opportunities for strategic tax planning, creating a cycle of regulatory adaptation and avoidance.93

These inefficiencies reinforce the strategic nature of tax compliance, where taxpayers and authorities continuously adjust their positions based on shifting incentives, beliefs and expectations, legal interpretations, and enforcement patterns. Unless policymakers address the structural uncertainty and asymmetry embedded within the system, tax compliance will remain an ongoing contest of adaptation rather than a stable framework of predictable enforcement.94

This cycle of rule-making, loophole discovery, and regulatory response ensures that taxation remains a strategic and evolving system rather than a stable compliance framework. Instead of reaching a final resolution, the system continuously evolves as

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both taxpayers and authorities refine their strategies in response to shifting incentives and enforcement priorities.95

Taxation is an evolving system, driven by the strategic equilibrium between taxpayers and authorities. As governments attempt to close loopholes and tighten enforcement, taxpayers continuously adapt, reshaping avoidance strategies rather than eliminating them.96 This regulatory cycle ensures that every intervention sparks an equally sophisticated counter-response,97 keeping tax authorities in a reactive position and struggling to outpace increasingly complex tactics.98

Despite repeated legislative efforts to curb aggressive tax planning, enforcement measures often lag behind evolving tax strategies.99 Governments introduce new regulations to close loopholes, yet these policies frequently create new and unforeseen opportunities for tax minimization.100 This cycle of regulatory adaptation exposes the fundamental limits of enforcement-driven solutions. Understanding the strategic equilibrium of tax behavior highlights the core challenge: enforcement alone is insufficient to disrupt the system’s incentives.101 Rather than fostering stability, each regulatory shift spurs new avoidance tactics and keeps authorities trapped in an endless cycle of reaction instead of prevention; this makes the tax system more complex and often skewed in different directions.102

As a result, the tax system remains structurally inefficient, unable to achieve true stability or effectiveness. This outcome is not a temporary flaw in the system; it is a structural reality of a system designed around strategic interactions. Because taxation operates as a strategic game where players continuously optimize their positions, enforcement alone cannot curb avoidance.

The next section examines why regulatory efforts fail to achieve lasting compliance and how systemic incentives perpetuate avoidance rather than prevent it.

Why does enforcement fail to prevent avoidance? Despite governments expanding enforcement efforts by introducing new regulations, increasing audit rates, and imposing stricter penalties, tax avoidance remains a persistent and entrenched feature of modern tax systems.103 This failure is not merely the result of insufficient oversight but a structural consequence of the tax system itself.

Enforcement strategies are not applied in isolation but rather as responses to broader compliance trends.104 Governments must determine audit strategies based on aggregate taxpayer behavior, rather than reacting to individual cases.105 Game theory models of Bayesian Games with infinitely many players show that individual taxpayer actions may seem negligible, but collectively, they influence enforcement thresholds and policy adjustments.106

A.(cid:3)The Cost-Benefit Limitations of Enforcement

Tax authorities operate within resource constraints, forcing them to prioritize enforcement efforts on high-value cases while leaving many tax-minimization strategies unchallenged.107 Comprehensive oversight is infeasible because auditing every

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taxpayer or corporation would require disproportionate administrative costs. As a result, authorities engage in selective enforcement, targeting major non-compliance while allowing smaller-scale (or better hidden) avoidance to persist.108

Empirical research further illustrates the unintended consequences of tax enforcement policies. Studies show that complete deterrence of tax evasion is possible, but only by shifting the burden onto honest taxpayers.109 When false detection errors, known as Type I errors, are costly enough, rational taxpayers may over-report their taxable income to avoid wrongful audits.110 This over-reporting results in the government collecting additional revenue, not through deterrence of evaders, but through excessive compliance from risk-averse taxpayers.111 The tax authority benefits from these miscalculations because it increases collections without requiring stricter penalties or enhanced detection capabilities.112 Instead of fostering stability, these enforcement policies create defensive compliance strategies, where taxpayers optimize their behavior to minimize audit risk rather than tax liability.113 This reinforces the broader argument that enforcement alone cannot ensure lasting compliance.

This defensive compliance dynamic aligns with broader cost-benefit considerations in tax enforcement. If enforcement efforts impose excessive burdens on compliant taxpayers, tax authorities must evaluate whether the revenue gains from aggressive audits outweigh the inefficiencies they introduce.114

Joel Slemrod’s cost-benefit framework highlights that enforcement must account for the marginal cost of compliance relative to revenue gains.115 For example, corporate tax audits disproportionately focus on transfer pricing abuses and offshore tax evasion, as these cases offer the highest revenue recovery per enforcement dollar spent.116 Meanwhile, subtler forms of avoidance, such as income reclassification, aggressive deductions, and entity restructuring, may evade scrutiny due to the sheer volume of taxpayers employing these tactics and the high cost of detection.117 This asymmetric enforcement structure fosters a compliance environment where taxpayers perceive enforcement as probabilistic rather than certain, effectively turning tax compliance into a strategic game. High-risk evasion strategies may be deterred by audit threats, but low-visibility avoidance techniques can thrive, exacerbating systemic inefficiencies and distorting taxpayer behavior.

B.(cid:3)The Complexity of Tax Law as a Tool for Avoidance

Paradoxically, the very structure of tax law incentivizes avoidance by creating loopholes through complexity.118 Tax codes are dense, technical, and frequently revised, making it not only difficult but unrealistic for regulators to anticipate every possible interpretation.119 Sophisticated taxpayers, particularly multinational corporations and HNW individuals, leverage this complexity to exploit unintended advantages.120

For instance, the TCJA, arguably the most significant tax reform since the Tax Reform Act of 1986,121 reduced corporate

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tax rates from 35 percent to 21 percent to curb profit shifting.122 However, the law also introduced provisions such as the Global Intangible Low-Taxed Income (GILTI) tax,123 which inadvertently incentivized firms to restructure operations to minimize their tax burden while remaining legally compliant.124 Rather than eliminating avoidance, the reform shifted tax planning strategies, with GILTI encouraging U.S. corporations to acquire tangible assets abroad, leading to inefficient ownership patterns.125 Additionally, the Foreign-Derived Intangible Income (FDII) provision functions as an export subsidy, raising concerns about potential World Trade Organization violations.126 The complexity and tax burden of GILTI may also drive more U.S. corporations to invert or restructure to avoid U.S. tax residency, further undermining the TCJA’s goal of reducing offshore profit shifting.127

The result is a system where compliance becomes a function of legal expertise rather than obligation. Those with access to specialized tax attorneys and accountants gain an advantage, further widening the gap between sophisticated taxpayers and ordinary individuals or small businesses that lack the resources to engage in sophisticated or aggressive planning.128 As a consequence, the tax burden falls disproportionately on those who are least equipped to navigate legal complexities, worsening economic inequality.129 When large corporations and wealthy individuals legally minimize their tax liabilities, middle-class taxpayers and small businesses shoulder a greater share of the fiscal burden.130 This disparity challenges the fundamental principles

of equity and fairness that tax policy is intended to uphold, reinforcing a system where wealth and access dictate tax outcomes rather than a uniform application of the law.131

C.(cid:3)The Adaptability of Avoidance Strategies

As explained before, taxpayers do not view enforcement as a fixed constraint but as a variable in a larger optimization problem.132 Within a strategic framework, tax enforcement operates as a repeated game, where sophisticated taxpayers and their advisors anticipate regulatory actions and adjust their strategies accordingly.133 When new regulations close existing loopholes, tax professionals develop alternative methods that comply with the letter of the law while undermining its intent.134 This dynamic reflects the game-theoretic principle of iterated play, where each regulatory move is met with an adaptive counterstrategy.135 Over time, this continuous cycle reveals a structural limitation of tax enforcement: policymakers can never fully eliminate tax avoidance but can only shift the equilibrium by altering incentives and constraints. While these adjustments may temporarily minimize avoidance behaviors, such relief is often fleeting as the underlying financial incentives to find new opportunities remain unchanged.136 The persistence of these incentives virtually guarantees that taxpayers will eventually resume tax planning activities, sometimes immediately after enforcement changes, creating an endless cat-and-mouse dynamic between regulators and those they regulate.

Thus, rather than achieving absolute compliance, this perpetual strategic adaptation highlights another reason for the

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inherent inefficiency of the tax system. Resources that could be allocated toward productive economic activity are instead devoted to regulatory arbitrage, enforcement mechanisms, and legal maneuvering.137 The result is a system where enforcement does not eliminate tax avoidance but merely transforms its form, reinforcing a costly and unending cycle of regulation and circumvention. A prime example is the evolution of tax hubs, tax havens, and tax shelters.138 When stricter banking regulations increased transparency requirements for offshore accounts, wealthy individuals and corporations shifted to more sophisticated vehicles such as shell companies, complex trust structures, or hybrid financial instruments that obscure beneficial ownership, or using different legal but complex structures that took advantage of different tax hubs.139 Each regulatory intervention creates a temporary deterrent rather than a permanent solution.140

Research experiments provide compelling evidence for how enforcement actually undermines compliance incentives.141 When detection risk and penalties were introduced in controlled settings, the previously significant difference between legal avoidance and illegal evasion disappeared.142 This confirms the theoretical prediction that external interventions can crowd out intrinsic motivation to comply with the law, reinforcing the strategic nature of tax planning rather than deterring it.143

As a result, enforcement remains perpetually reactive, always attempting to catch up rather than preempt avoidance. Without addressing the underlying incentive structures that drive strategic tax behavior, governments will continue to face a never-ending cycle of loophole creation and regulatory response.

These findings illustrate a broader institutional phenomenon that this Article terms “a recursive complexity loop,” where each new layer of regulation or new laws, introduced in response to strategic avoidance, adds complexity to the tax code. That complexity, in turn, creates new ambiguities and tax planning opportunities.144 As sophisticated taxpayers exploit these openings, policymakers respond with further regulatory adjustments.145 The process becomes self-reinforcing, as each round of reform inadvertently sets the stage for the next round of strategic behavior. Rather than stabilizing the system, this recursive complexity loop deepens the overall complexity of the federal tax system and ensures that strategic tax avoidance remains a persistent, rational response. Understanding the tax system as subject to this loop is essential to grasping why enforcement alone cannot achieve durable compliance.

D.(cid:3)The Welfare Theorems and Tax System Distortions

The current tax system framework described earlier distorts markets by incentivizing sophisticated taxpayers to divert resources into tax planning rather than productive investments.146 According to the First Welfare Theorem, a well-functioning market should allocate capital based on economic fundamentals, not regulatory arbitrage.147 However, the complexity of the tax code, along with other structural inefficiencies in the federal tax system, functions as a market externality.148 This results in a scenario

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where HNW individuals and corporations engage in tax optimization strategies that generate no productive value, effectively imposing a negative externality on less sophisticated taxpayers who bear a disproportionate tax burden as a result of this.149

In the context of the U.S. federal tax system, this distortion is particularly evident in areas such as corporate profit shifting, the preferential treatment of pass-through entities under Section 199A,150 and the use of tax deferral mechanisms in international taxation, such as the pre-2017 deferral regime for controlled foreign corporations (CFCs).151 Additionally, capital gains taxation, with its lower rates and step-up in basis provisions, disproportionately benefits wealthier individuals and further incentivizes tax planning over real economic investment.152 A prime example is the use of trusts by HNW individuals to shield wealth from taxation across generations.153 Vehicles such as grantor-retained annuity trusts (often referred to as GRATs),154

intentionally defective grantor trusts (IDGTs),155 and dynasty trusts allow individuals to transfer significant wealth while minimizing estate and gift tax liabilities.156 These mechanisms exploit valuation discounts,157 income shifting, and tax-free appreciation to preserve intergenerational wealth in a manner unavailable to lower-income taxpayers.158 The strategic use of offshore and domestic asset protection trusts further intensifies disparities by enabling HNW individuals to legally defer or avoid taxes altogether, thereby distorting the intended progressivity of the tax system and reinforcing wealth concentration.159

While the First Welfare Theorem demonstrates that competitive markets can achieve efficiency under ideal conditions, it does not address whether the resulting allocation of resources is fair or socially desirable.160 This is where the Second Welfare Theorem becomes relevant.161 It states that any Pareto-efficient outcome can be achieved through an appropriate redistribution of initial endowments, followed by market transactions.162 In the context of taxation, this suggests that governments can correct market distortions and address inequities by implementing policies that redistribute wealth without sacrificing overall economic

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efficiency. In modern and contemporary tax scholarship, we often refer to this as “progressive taxation.”163

One key implication of the Second Welfare Theorem is that rather than relying on complex and distortionary tax loopholes, direct redistribution mechanisms, such as progressive income taxation, wealth taxes, and targeted transfer programs, could (at least in theory) create a more equitable economic landscape without significantly disrupting productive economic behavior.164 For instance, eliminating preferential tax treatment for capital gains and trusts while simultaneously lowering overall marginal tax rates could reduce distortions while preserving market efficiency. Additionally, the theorem supports the argument that a welldesigned tax-and-transfer system can mitigate the externalities created by tax avoidance, particularly among HNW individuals and corporations.165 Policies such as broad-based consumption taxes (e.g., VAT), real-time tax withholding for capital income, and the elimination of stepped-up basis in estate taxation are examples of how redistribution can be achieved without excessive economic distortions.166

A critical challenge, however, is ensuring that redistribution mechanisms do not reintroduce inefficiencies by distorting incentives. For example, while a wealth tax could effectively redistribute wealth, poorly structured implementation of it, such as high administrative costs or valuation challenges (which are actually expected and therefore complicates this issue), could lead to capital flight and tax evasion, undermining efficiency gains.167 Similarly, excessive taxation on labor income could discourage

work and investment, contradicting the efficiency principles of the theorem.168

Ultimately, the Second Welfare Theorem suggests that to achieve both efficiency and fairness in the economy, tax policy should prioritize premarket redistribution, such as inheritance taxes, basic income programs, and wealth transfers, rather than adding excessive complexity to the tax code (which often leads to the exact opposite).169 By simplifying tax structures and ensuring fair initial allocations, governments can promote both efficiency and equity while reducing the need for aggressive enforcement against tax avoidance.170

However, the reality of modern taxation deviates from the theoretical predictions of the welfare theorems because, as previously illustrated, the tax system has become a strategic game rather than a neutral policy tool; hence, economic distortions are already built into the system as it is currently designed.171 That alone creates a distortion so significant that any attempt by the government to fix the system will ultimately fail and will not meaningfully improve its efficiency.172

HNW individuals and corporations engage in continuous tax planning and arbitrage, leveraging legal loopholes and financial engineering to minimize their liabilities, while the tax code itself evolves reactively, always one step behind.173 This constant interplay ensures that those with access to sophisticated tax planning strategies will always have an inherent advantage, leading to a system that is not only inefficient but structurally incapable of achieving the equity and neutrality it was designed to uphold.174

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If the ultimate goal is to reconcile efficiency with fairness, then policymakers must acknowledge that incremental fixes and enforcement measures cannot fully resolve the problem. Rather, they should reconsider key aspects of the tax system’s fundamental structure. This requires moving away from complex, loophole-ridden policies that incentivize gaming the system and toward a framework that is simpler, broad-based, and less susceptible to strategic manipulation. Without such fundamental reassessment, taxation will remain a hidden game in which the rules change, but the winners stay the same.

(cid:40)(cid:17)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:76)(cid:80)(cid:3)(cid:54)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)

The discussion thus far has demonstrated that tax avoidance is not an anomaly but a fundamental characteristic of modern taxation, shaped by the strategic interactions between taxpayers and regulators. Structural constraints within the tax system limit the effectiveness of enforcement measures, making it difficult for governments to curb aggressive tax planning in a meaningful or lasting way.175 The complexities of the legal framework, the cost-benefit limitations of enforcement, and the adaptability of sophisticated taxpayers create a continuous cycle in which every regulatory measure is countered by new avoidance strategies, preserving existing tax advantages.176

If tax avoidance is an inherent feature of the system rather than a temporary failure of enforcement, then the real challenge lies in the design of tax policy itself. The ongoing adjustments between regulators and taxpayers suggest that as long as tax laws provide opportunities for strategic maneuvering, avoidance will remain pervasive.177 Instead of focusing solely on enforcement, policymakers must address the structural incentives that encourage these behaviors. The following Part explores how rethinking tax structures can minimize avoidance by reshaping the incentives that sustain it.

A.(cid:3)How Governments’ Tax Policies Reinforce Avoidance Through

Policy Choices

In order to rethink the fundamental design of tax policy, we must first identify the key weaknesses in the current system. This requires not only analyzing why enforcement fails, as we did in previous subsections,178 but also examining the structural inefficiencies that enable strategic tax planning. This requires looking beyond enforcement gaps to understand how the design of tax laws, the complexity of compliance, and the incentives embedded in the system itself contribute to avoidance. Only by addressing these underlying issues can we develop a framework for reform that reduces the opportunities for tax minimization and shifts taxpayer behavior toward genuine compliance.

At the same time, even as governments make significant efforts to curb tax avoidance,179 many government policies unintentionally create new opportunities for tax planning.180 Tax laws are designed with competing objectives, such as raising revenue, stimulating investment, and maintaining economic competitiveness,181 yet these priorities often result in a system full of loopholes that sophisticated taxpayers exploit.182

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One significant way governments reinforce avoidance and exacerbate inefficiency is through complex tax expenditures.183 Deductions, credits, and exemptions, originally intended to promote economic activity or social policy goals, frequently become tools for tax minimization.184 Preferential treatment for capital gains, accelerated depreciation, and R&D credits, for example, provide avenues for income reclassification, allowing taxpayers to reduce their effective tax rates without fundamentally altering their economic activity.185

International tax rules further worsen avoidance by facilitating profit shifting.186 Territorial tax systems, combined with inconsistencies in global tax coordination, enable multinational corporations to exploit gaps between jurisdictions.187 By leveraging hybrid entities, mismatches in tax treatment,188 and favorable regimes in tax havens,189 corporations legally shift profits to

low-tax jurisdictions.190 Even legislative attempts to curb these strategies, such as the GILTI and FDII provisions in the TCJA,191 have not eliminated avoidance but instead encouraged new structuring techniques that allow firms to retain tax advantages.192

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Governments also contribute to avoidance through inconsistent enforcement and tax amnesties.193 While initiatives like the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) have increased transparency and reporting,194 they have also driven sophisticated taxpayers toward

more complex financial structures rather than genuine compliance.195 Similarly, while tax amnesties may be politically advantageous and convenient, they often send the wrong message by reinforcing the expectation that non-compliance is temporary rather than a lasting risk.196 This encourages taxpayers to strategically underreport income, knowing that future amnesties will provide a way to come into compliance at minimal cost.197

Ultimately, the issue extends beyond weak enforcement. Even with increased enforcement and greater international cooperation, as seen in recent years, the overall efficiency of the tax system remains largely unchanged due to structural flaws in tax policy itself.198 Addressing tax avoidance requires a fundamental shift from policies that incentivize non-compliance to a tax system that aligns taxpayer behavior with policy objectives, rather than perpetually enabling legal tax minimization.

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B.(cid:3)Structural Reforms to Realign Compliance Incentives

Since enforcement alone has proven insufficient in curbing tax avoidance, the focus must move toward structural reforms.199 A tax system that allows room for aggressive planning will inevitably lead to avoidance, regardless of how many anti-avoidance measures are introduced.200 This Article argues that the main goal of such structural reform should not be to continuously react to new tax strategies but to fundamentally realign the tax system so that compliance becomes the rational choice rather than an obstacle to be navigated.

As discussed earlier through a game theory lens, the current system incentivizes strategic maneuvering, with taxpayers weighing the benefits of avoidance against enforcement risks, creating a “vicious cycle” of enforcement and tax optimization.201 A more effective approach would reshape these incentives, ensuring that compliance becomes the dominant strategy rather than just another move in the game.

One possible solution is to simplify the tax system and broaden the tax base.202 A tax system filled with deductions, exemptions, and special tax treatments encourages sophisticated taxpayers to exploit classification differences to reduce liabilities.203 By eliminating unnecessary tax expenditures and ensuring that income is taxed consistently across different sources, policymakers can reduce the opportunities for strategic manipulation. For example, aligning tax rates between labor and capital income would remove incentives for income reclassification, a strategy commonly used by high-income earners and corporations, and could potentially lower compliance costs.204 Such reforms align with what Theodore Seto calls taxing the “maximand.”205 He argues that the government should tax whatever the taxpayer seeks to maximize in the absence of taxation.206 For a public corporation that wants to report high profits to shareholders, a tax based on those reported profits creates a natural check on avoidance.207 The taxpayer cannot reduce its tax bill without also hurting the numbers it presents to investors.208 This dilemma forces the player to choose between tax savings and market performance.

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However, while simplification is an appealing goal, it is much easier to advocate for than to implement. Tax systems are inherently complex because they reflect the intricacies of society and the economy, and they do not exist in a vacuum.209 Every deduction or exemption has a policy rationale, often rooted in economic incentives or social objectives, making broad reform politically and administratively challenging.210 Though we should strive for a simpler tax system, achieving meaningful simplification in practice is significantly more complicated and, in some cases, may even prove unrealistic.211

Another structural reform involves real-time taxation, AIbased technology, and automated compliance mechanisms.212 Traditional enforcement methods, which rely on costly audits and time-consuming investigations, often occur long after taxpayers have structured their financial affairs to minimize their obligations.213

This reactive approach enables tax avoidance and noncompliance to persist. Rather than a straightforward enforcement mechanism, taxation operates more like an infinite strategy game, where neither side can declare a definitive victory but must continuously refine its approach.214 Just as infinite games lack a fixed endpoint and rely on evolving probability distributions rather than discrete choices, the tax system remains in perpetual motion, with taxpayers and authorities adjusting their strategies based on shifting regulations, enforcement mechanisms, and newly discovered loopholes.215

Like a game of chess played in the dark, tax authorities make their moves based on incomplete information, only discovering their opponent’s last maneuver after it has been executed.216 Meanwhile, sophisticated taxpayers anticipate these reactions and design strategies that will remain effective just long enough to be profitable before the rules change again.217

This iterative cycle is more than just a sequence of moves; it reflects the self-perpetuating nature of strategic equilibrium. Every tax loophole, enforcement mechanism, or legal interpretation is not an endpoint but a temporary truce in an ongoing contest of adaptation. Authorities believe they are closing gaps, but, in reality, they are merely shifting the terrain, prompting taxpayers to recalibrate and exploit new inefficiencies elsewhere. Unlike traditional economic models that assume a fixed set of choices, tax compliance unfolds within a constantly shifting game space, where the very act of regulating reshapes the strategies available to both players.218 Also adding to this complexity, sophisticated players often have alternative playing fields at

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their disposal.219 If they are dissatisfied with the current one, they can relatively easily relocate their assets, wealth, or operations to a more favorable jurisdiction that offers a regulatory environment better suited to their strategic interests.220 Their high mobility allows them to navigate tax regimes fluidly, ensuring they always have another playground where the rules may be more accommodating.221

At its core, this dynamic reflects the limits of enforcement as a control mechanism. The law is not static, nor is it a fixed set of rules governing behavior; it is an evolving strategic landscape, shaped by those who seek to navigate it.222 Rather than a game with a final checkmate, taxation is an arms race without an armistice, where innovation on one side ensures perpetual recalibration on the other. The real challenge for tax authorities, therefore, is not merely to react to taxpayer behavior but to reshape the game itself and to alter incentives in ways that fundamentally change the decision matrix, rather than just closing yesterday’s loopholes.

This lag allows sophisticated taxpayers to exploit enforcement gaps, much like a player in a strategic game who adjusts moves based on the opponent’s last action rather than an optimal forward-looking strategy. A shift toward real-time tax collection and digital reporting systems can preemptively address compliance gaps, closing loopholes before they are heavily exploited.223

AI-powered tax systems enhance enforcement by continuously monitoring financial transactions, identifying anomalies, and flagging potential tax avoidance in real time.224 Machine learning algorithms can assess taxpayer behavior, predict compliance risks, and optimize audit selection, improving the efficiency of tax administration.225 Countries that have adopted digital tax reporting and AI-driven invoice-matching systems have reported significant reductions in underreporting and fraudulent claims.226 Moreover, AI-based tax platforms can reduce administrative burdens by automating compliance tasks, minimizing human errors, and providing real-time guidance on tax obligations.227 By leveraging automation and advanced analytics, governments cannot only enhance revenue collection but also limit opportunities for strategic transaction restructuring designed to circumvent taxation.228 However, implementing AI in taxation also raises

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concerns regarding data privacy, algorithmic transparency,229 and the risk of over-enforcement, which require well-defined regulatory frameworks, something which at the time of writing this Article, many countries, including the United States, lack completely.230 While AI-powered tax systems can offer unparalleled efficiency in enforcement and compliance, they also risk deepening the bureaucratic rationalization of taxation, potentially at the expense of other, and somewhat contradicting, democratic values.231 As Jacob Mökander and Ralph Schroeder argue, a machine-like tax system optimized through AI may intensify the Weberian trend of instrumental rationalization,232 where tax policy is dictated by data-driven efficiency rather than broader normative considerations.233 This approach, while enhancing revenue collection and reducing tax avoidance, may come at the expense of individual autonomy and democratic deliberation over the fundamental purpose of taxation.234 AI-driven tax policy optimization would not merely adjust rates or improve enforcement; it would fundamentally transform taxation from a negotiated social contract into an impersonal system of algorithmic control, a system in which policymakers and elected officials may have minimal influence.235

Furthermore, as tax compliance becomes increasingly automated and optimized, public engagement with tax policy may erode, reducing taxation to a background process that functions almost as “white noise.”236 This shift risks undermining the perception of taxation as a civic duty, reframing it as a purely external and imposed obligation detached from broader democratic participation and public accountability.237 Without clear and strict regulation, such a system can have far-reaching consequences, including the erosion of democratic oversight, the entrenchment of opaque decision-making processes, and the potential for algorithmic biases to disproportionately impact certain taxpayers.238 This is not merely a theoretical risk, as recent years have demonstrated multiple instances of technology being used in similar ways across different contexts.239

Additionally, a lack of transparency and accountability in AI-driven tax administration may undermine public trust in the tax system, further distancing citizens from meaningful engagement in fiscal policy. This shift could have unintended consequences, as legitimacy in tax systems is not solely derived from efficiency but also from public trust and the perception of fairness.240 In addition, as AI-driven systems continuously refine

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taxation in real time, they may entrench existing economic structures rather than challenge them, reinforcing systemic inequities under the guise of optimization.241 The tension between freedom and equality is particularly relevant here; while AI may enhance equality by closing loopholes and ensuring more consistent enforcement, it also risks constraining individual financial agency, reducing citizens to mere data points in an optimization function rather than active participants in shaping fiscal policy.242

If the goal is to realign compliance incentives, policymakers must recognize that taxation is not just a technical challenge but a social contract,243 one that must balance efficiency with transparency, enforcement with democratic legitimacy, and equality with economic freedom.244

Overall, simply implementing AI-based technology and automated compliance mechanisms, though it may initially appear to be a perfect solution, presents significant challenges, not only technological but also ethical and legal. The reliance on AI in tax administration raises concerns about algorithmic bias, transparency, and due process, particularly when decisions are made with minimal human oversight.245 Moreover, without proper regulatory

safeguards, these systems risk reinforcing existing inequities, disproportionately affecting certain taxpayer groups while limiting avenues for contesting automated decisions.246 Ensuring that AI-driven tax enforcement aligns with principles of fairness, accountability, and democratic legitimacy requires a careful balance between efficiency and fundamental rights. At the time of writing this Article, such a regulatory environment remains largely undeveloped and understudied.

In addition to these structural reforms, rethinking the tax base itself may be necessary to limit profit shifting and legal tax avoidance. A system that relies on reported corporate profits creates strong incentives for multinational corporations to shift income across jurisdictions.247 Alternative models, such as destinationbased taxation, cash-flow taxation, or minimum effective tax rates, could reduce the benefits of shifting profits to low-tax jurisdictions.248 The Organisation for Economic Co-operation and Development’s (OECD’s) Pillar Two initiative, which establishes a global minimum tax, is an example of an effort to neutralize the

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incentive for companies to relocate income to tax havens.249 While this approach does not eliminate avoidance, it changes the cost-benefit calculation, previously discussed in this Article, by ensuring that low-tax jurisdictions no longer provide the same advantages.250

Last, any structural reform must also address the predictability of enforcement and compliance expectations. If taxpayers believe that anti-avoidance rules will be selectively enforced or that future tax amnesties will allow them to come into compliance without penalties, the system will continue to incentivize strategic non-compliance.251 Ensuring that tax rules are clear, consistently enforced, and difficult to circumvent is essential to making compliance the logical economic choice rather than a burdensome legal requirement.

While the limitations of enforcement-centered approaches are clear, it would be an oversimplification to dismiss the role of penalties entirely in reshaping compliance incentives. Empirical research on tax enforcement provides important nuance to this structural reform framework.252 While traditional deterrence approaches often fail to achieve lasting compliance, strategic analyses suggest that the severity of penalties can be effective under specific conditions.253 Empirical research demonstrates that when penalties are coupled with certainty of punishment and transparent enforcement mechanisms, tax evasion can be reduced.254 However, these findings also highlight that without addressing

the underlying game-theoretic incentives, even the harshest penalties ultimately prove ineffective as sophisticated players adapt their strategies to the new parameters.255 The key insight is not that enforcement is irrelevant, but rather that it must be embedded within a broader structural redesign that fundamentally alters the strategic calculation facing potential tax avoiders.

This tension between enforcement and structural incentives underscores why the reforms proposed in this Article focus on fundamentally realigning the strategic landscape rather than merely adjusting enforcement variables. By embedding real-time compliance mechanisms into the financial system itself, for example, the opportunity for strategic manipulation diminishes regardless of penalty levels.

Ultimately, realigning compliance incentives requires a fundamental shift in how tax laws interact with taxpayer behavior. Instead of focusing solely on closing loopholes, tax policy should be designed to remove the structural advantages of avoidance. A system that minimizes complexity, reduces opportunities for tax arbitrage, and integrates real-time enforcement mechanisms, in an ethical and transparent manner, would make tax avoidance an inefficient strategy rather than a lucrative one.256 While research has found that moral priming could restore some compliance effect, the evidence highlights the need for fundamental restructuring rather than incremental enforcement adjustments.257 Only by changing the structural foundations of taxation can policymakers move beyond reactive enforcement and toward a system that fosters genuine compliance.

As long as tax systems rely on delayed reporting, complex compliance mechanisms, and jurisdictional mismatches,

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opportunities for strategic tax planning will persist.258 Instead of relying solely on reactive enforcement, modern tax policy must embrace technological solutions that transform tax collection itself. While the risks associated with technology and AI-driven tax administration in the previous Section, such as algorithmic bias, lack of transparency, and over-enforcement, are legitimate and must be addressed through robust regulatory frameworks, they should not serve as justification for avoiding these advancements altogether.259 Rejecting AI and automation in taxation due to potential risks would be like refusing to adopt automobiles in favor of horse-drawn carriages simply because cars require traffic regulations. Rather than resisting change, policymakers must focus on ensuring that AI-driven and technology tax systems are implemented responsibly, with safeguards that uphold fairness, accountability, and democratic oversight.

To fully harness the potential of technology and AI and automation in taxation, reforms must go beyond merely digitizing existing processes.260 Instead of layering new technology onto outdated frameworks, tax policy should be restructured to align compliance with economic reality in real time. By embedding tax collection into the financial system itself, rather than treating it as a separate and reactive process, governments can reduce both enforcement costs and opportunities for tax avoidance.261 This shift requires a fundamental rethinking of tax administration, ensuring that compliance is not just enforced but structurally embedded into economic transactions.

Two major structural reforms which are already unfolding in some jurisdictions, real-time taxation for individuals and businesses and destination-based taxation for corporations,262 offer a path toward a system where compliance is no longer an afterthought but an integrated and automated process.263 Embedding compliance into the system in real time would significantly reduce opportunities for tax planning.264 Advances in AI, blockchain, and digital transaction tracking have matured to the point where they can streamline tax collection, minimize deferral opportunities, and eliminate profit shifting by taxing income and transactions at the point where they occur.265

While taxation has long been treated as a compliance problem, the earlier analysis demonstrated that it is better understood as a strategic game, where both taxpayers and authorities continuously adjust their positions in response to shifting incentives and enforcement mechanisms.266 As explored through game theory and Nash equilibrium, taxpayers do not simply choose between compliance and non-compliance.267 Instead, they optimize within the system, leveraging loopholes, deferral strategies, and

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jurisdictional mismatches to minimize liabilities.268 This dynamic ensures that avoidance is not an anomaly but a stable feature of the tax system, reinforced by regulatory complexity and the adaptability of sophisticated actors. Similarly, welfare theory highlights how these inefficiencies distort economic behavior, misallocating resources toward tax planning rather than productive investment.269 Given these findings, minimizing the time between the moment a transaction occurs and when taxes are assessed and collected would significantly reduce opportunities for tax optimization strategies. By eliminating the lag between financial activity and enforcement, tax authorities can close many of the gaps that currently enable strategic maneuvering.

The following Sections explore how real-time taxation can minimize avoidance by ensuring that tax obligations are assessed and collected instantly, reducing the need for audits and posthoc enforcement. Similarly, destination-based corporate taxation eliminates the incentives for profit shifting by ensuring that companies are taxed where their economic activity takes place rather than where they choose to declare profits.270 By integrating these technology-driven solutions, governments can realign tax incentives, simplify compliance, and make strategic tax avoidance an inefficient option rather than a standard business practice.

A.(cid:3)Real-Time Taxation for Individuals and Businesses

Traditional tax systems rely on periodic reporting and posthoc enforcement, leaving significant room for manipulation, misreporting, and strategic tax planning.271 Individuals and businesses

often delay tax payments, restructure income classifications, or exploit deductions and exemptions that minimize their tax liabilities.272 Audits and enforcement efforts occur after the fact, creating a compliance gap where tax authorities must chase unpaid or improperly reported taxes.273 Real-time taxation eliminates these inefficiencies by ensuring that tax liabilities are assessed and collected at the moment of economic activity, reducing opportunities for avoidance and increasing compliance.274 The adoption of real-time taxation mechanisms has the potential to reduce tax uncertainty and compliance disputes. Empirical evidence from the IRS Compliance Assurance Process (CAP) demonstrates that voluntary real-time audits have led to a significant reduction in firms’ tax reserves, suggesting that proactive engagement with tax authorities can mitigate tax-related risks.275 By integrating tax collection into financial transactions, similar benefits could be extended beyond corporate audits to broader tax administration.276

In general, a real-time taxation system integrates automated tax collection directly into financial transactions.277 Instead of relying on taxpayers to report their income and deductions retroactively, tax authorities receive transaction-level data instantly, allowing them to assess and collect tax obligations without delay.278 This can be achieved through a combination of:

(cid:120)(cid:3)Automated Withholding Systems: Tax is deducted at the source, ensuring that wages, business revenues, and investment income are taxed in real time.279

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(cid:120)(cid:3)AI-Driven Tax Calculations: AI can instantly assess tax liabilities based on real-time financial activity, minimizing reporting errors and fraudulent claims.280 (cid:120)(cid:3)Blockchain-Based Tax Ledgers: A decentralized, tamperproof ledger can securely track transactions, ensuring transparency and reducing opportunities for tax evasion.281

Though only several years ago some of this sounded more like science fiction than reality, some governments have already implemented elements of real-time tax collection with measurable success.282 For example:

(cid:120)(cid:3)Brazil’s Nota Fiscal Eletrônica (NF-e): A digital invoicing system that requires businesses to report sales transactions instantly, ensuring accurate tax collection and reducing underreporting.283

(cid:120)(cid:3)India’s Goods and Services Tax (GST) Invoice Matching: A real-time reporting mechanism that prevents fraudulent input tax credit claims by cross-verifying transactions.284

(cid:120)(cid:3)Estonia’s E-Taxation System: A fully digitized tax system that pre-fills tax returns based on real-time financial data, reducing errors and the need for audits.285

Real-time taxation offers several key advantages that address long-standing inefficiencies in traditional tax collection.286 By ensuring that taxes are assessed and collected at the moment a transaction occurs, it eliminates opportunities for deferral and misreporting, closing gaps that allow income to be hidden or strategically delayed (as often times sophisticated taxpayers would focus on tax deferral as a strategy).287

This approach also significantly reduces the administrative burden on both individuals and businesses, as taxpayers no longer need to manually track, report, or reconcile every financial detail.288 Instead, compliance becomes a seamless, automated

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process integrated into daily economic activity.289 In addition to easing compliance, real-time taxation enhances revenue stability for governments by ensuring a steady flow of tax income rather than relying on periodic filings, which can fluctuate due to non-compliance or delayed payments.290 Furthermore, a fully digital tax system can increase transparency, making it more difficult to manipulate financial records, underreport income, or engage in fraudulent schemes.291 By leveraging technology to integrate taxation into real-time financial transactions, this system cannot only simplify compliance but also strengthens enforcement in a way that is both efficient and less intrusive and distortive.292

Yet, while real-time taxation offers significant benefits, it also presents challenges that must be addressed for effective implementation. Privacy and data security are major concerns, as real-time reporting systems require robust protection measures to prevent the misuse of sensitive financial information.293 Without strong encryption and strict access controls, taxpayers may resist compliance due to fears of surveillance or data breaches.294 Additionally, some businesses and tax professionals may push back against automated tax collection, citing concerns over cash flow management and reduced flexibility in tax planning.295 Many companies rely on timing strategies to manage liabilities, and

the shift to real-time taxation would require adjustments to financial operations.296 Furthermore, successful implementation requires significant investment in infrastructure and technology, as well as educating the public and the business sector.297 Governments must develop and deploy technology and AI-driven systems, blockchain-based ledgers, and secure digital payment networks to ensure real-time tax enforcement at scale.298 Without these technological advancements, real-time taxation could create more administrative hurdles rather than simplifying compliance.

Overall, despite these challenges, the shift toward realtime taxation is an inevitable step in modernizing tax administration. As digital transactions become the norm, real-time tax collection will reduce compliance burdens, close enforcement gaps, and fundamentally reshape the way taxes are collected.

B.(cid:3)Destination-Based Taxation for Corporations

Generally, a destination-based corporate tax system shifts taxation from where a company is at or where profits are declared to where economic activity actually takes place.299 This approach eliminates the incentives for multinational corporations

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to shift profits to low-tax jurisdictions, since their tax liability is determined by where their goods and services are consumed rather than where they choose to report income.300 By taxing corporations based on the location of their customers, rather than their internal accounting and legal structures, this system reduces profit shifting, transfer pricing manipulation, and the artificial allocation of intellectual property rights to tax havens.301 Additionally, this model aligns corporate tax obligations more closely with the economic benefits companies derive from operating in a given jurisdiction, making the system both fairer and more resistant to avoidance. This shift moves the system toward what Seto describes as taxing economic reality.302 He critiques current international rules for relying on numbers created primarily for tax purposes, such as transfer prices between subsidiaries.303 Because multinational corporations are fairly indifferent to these artificial prices, they are able to manipulate them relatively easily.304 Seto argues that a robust tax system must be anchored in factors that taxpayers cannot easily change or manipulate, such as the location of their third-party customers.305

Technological advances in AI, blockchain, and digital transaction tracking could make the implementation of destinationbased taxation more feasible than it was ever before by accurately mapping corporate transactions and corporation’s economic activity across multiple jurisdictions, ensuring compliance and reducing disputes over tax liabilities.306

A critical mechanism for implementing destination-based taxation is real-time transaction tracking, which enables tax authorities to precisely determine the nature of sales (e.g., for export or domestic) and apply taxes accordingly.307 Recent advancements in technology have reached a level of maturity that enables the creation of secure, automated systems for transaction verification and precise tax assessment.308 These innovations have the potential to improve the efficiency and accuracy of cross-border tax administration while limiting opportunities for strategic tax planning and profit shifting.309 However, implementing such systems demands careful attention to data privacy, international coordination,310 and the risk of unintended economic distortions.311 For multinational corporations, governments could require digital reporting of revenue allocation, enabling authorities to track cross-border transactions and prevent profit shifting.

Ensuring compliance will require enhanced international cooperation and real-time data-sharing and exchange agreements. While the framework for the exchange of tax information already exists between many countries, it operates within the current tax reality, where the data collected and shared is often several months old, limiting its effectiveness in addressing tax planning strategies as they unfold.312 To make this system truly

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effective, countries would need to establish a real-time exchange of information framework, harmonize reporting requirements, and develop protocols for resolving tax disputes proactively rather than reactively.

For example, the OECD’s Pillar One initiative focuses on reallocating taxing rights for large multinational corporations, particularly digital companies, based on the location of their economic activity rather than where they are headquartered.313 However, its successful implementation depends on strong enforcement mechanisms and real-time data integration, moving beyond the current framework, which relies on retrospective data exchange.314 To effectively prevent profit shifting and tax avoidance, a real-time information-sharing system would be necessary, ensuring tax authorities have immediate access to relevant transactional data. While existing international tax cooperation relies on retrospective data exchange, shifting to real-time information sharing is essential to minimize tax avoidance.315 However, this transition requires significant investment in new infrastructure, education and training of staff, and a cohesive, broadly implemented framework.316

By leveraging digital infrastructure and standardizing international tax rules, destination-based taxation could dramatically enhance compliance and promote a fairer distribution of tax revenue among jurisdictions and taxpayers. However, the United States’s decision not to support this initiative significantly weakens its viability.317 Without the United States’ participation,

enforcement becomes more challenging, as multinational corporations based in the United States may not be subject to the new tax allocation rules.318 This could create asymmetries in global tax enforcement, allowing firms to exploit loopholes and shift profits to more favorable jurisdictions.319 To ensure the initiative’s effectiveness, policymakers must address these gaps and consider alternative enforcement mechanisms, including unilateral measures or trade-based responses to encourage broader adoption.

The federal tax system operates like a game, with sophisticated players constantly adapting while tax authorities struggle to keep pace. Every attempt to close a loophole creates new opportunities for avoidance, and each enforcement effort triggers counterstrategies that make the system even more complex. The cycle persists because the incentives remain unchanged. As long as the system rewards strategic tax planning over compliance, tax avoidance will continue to thrive.320

Governments and tax authorities often treat enforcement as a chase, reacting to avoidance rather than preventing it.321 This approach mirrors a cat-and-mouse pursuit through an evershifting maze where authorities scramble to close loopholes just as new ones emerge. The system never stabilizes. It remains in constant motion, rewarding those with the resources and expertise to stay ahead. Regulators, always a step behind, remain locked in a cycle of reaction rather than control.

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This Article argues that governments must stop treating tax avoidance as a temporary problem solvable through enforcement and incremental reform. The problem is structural. Any system that allows for interpretation, manipulation, and jurisdictional arbitrage will be exploited. Just as critically, any system that permits delays in reporting creates opportunities for tax planning. The lag between financial activity and enforcement gives sophisticated taxpayers time to chart new routes through the constantly shifting landscape, staying ahead while tax authorities struggle to catch up. As long as gaps remain, whether through loopholes, deferrals, or jurisdictional mismatches, the game will continue, favoring those with the resources and expertise to exploit it. This is not a failure of enforcement. It is an inevitable consequence of a system designed around strategic decision-making rather than straightforward compliance.

A fundamental shift is needed. Simplifying the tax code would reduce the advantage held by those who thrive on its complexity. Real-time taxation would eliminate the enforcement lag that enables avoidance strategies before authorities can intervene. Destination-based taxation would curb profit shifting by ensuring that corporations are taxed where they generate revenue, not where they choose to report it. These reforms would not eliminate every avenue for tax minimization, but they would change the cost-benefit calculus of tax planning. Compliance would become easier, enforcement more effective, and avoidance less appealing.

The greatest obstacle to meaningful reform is the absence of international cooperation. The OECD’s Pillar One initiative attempts to close jurisdictional loopholes that facilitate profit shifting, but without support from major economies, especially the United States, its impact is significantly weakened.322 When powerful jurisdictions refuse to cooperate, multinational corporations gain an escape route, ensuring that avoidance strategies remain viable. This asymmetry does more than undermine tax reform. It fuels a race to the bottom, where jurisdictions compete to offer the most favorable tax environments. If the United States continues to reject multilateral solutions, other countries will respond with unilateral measures such as digital service

taxes, targeted enforcement actions, or trade restrictions.323 This will further fragment the international tax system and make it more vulnerable to abuse.

The tax game will not end unless the rules change at their foundation. Governments must recognize that enforcement alone will never be enough. The incentives that make tax avoidance a rational strategy must be eliminated at their source. This requires replacing complexity with simplicity, shifting enforcement from reactive to proactive, and ensuring that tax liabilities reflect real economic activity rather than artificial legal structures. Without these changes, the game will continue, with the same winners and the same losers. The only question is how long policymakers will allow it to play out before they decide to rewrite the rules for good. Until then, the game is set. The rules are well understood. For those who know how to play, victory is all but guaranteed. In this system, the winners keep winning, the losers keep losing, and policymakers keep chasing an outcome they cannot control. Winner winner, chicken dinner.324

--- FOOTNOTES ---

Volume 17 (2025-2026) Issue 3

4-2026

Doron Narotzki University of Akron

Article 4

Part of the Law and Psychology Commons, Taxation-Federal Commons, and the Tax Law Commons

Repository Citation Repository Citation

Doron Narotzki, The Hidden Tax Game, 17 Wm. & Mary Bus. L. Rev. 659 (2026),

https://scholarship.law.wm.edu/wmblr/vol17/iss3/4

Copyright c 2026 by the authors. This article is brought to you by the William & Mary Law School Scholarship Repository. https://scholarship.law.wm.edu/wmblr

DORON NAROTZKI(cid:13)

ABSTRACT

(cid:13) Doron Narotzki is an Associate Professor of Tax at the University of Akron College of Business, Daverio School of Accountancy, Frank & Karen Steininger Fellow and the Director of the Master of Taxation Program.

Special thanks to Taylor Calarco for her excellent research assistance.

TABLE OF CONTENTS

I. TAX AVOIDANCE AS A STRATEGIC GAME: APPLYING GAME

II. THE STRUCTURAL LIMITS OF TAX ENFORCEMENT .................. 681

III. RETHINKING THE TAX FRAMEWORK TO REDUCE

CONCLUSION—THE GAME WILL NEVER END UNLESS WE

INTRODUCTION

1 Natasha Sarin, The Case for a Robust Attack on the Tax Gap, U.S. DEP’T TREASURY (Sep. 7, 2021), https://home.treasury.gov/news/featured-stories/the -case-for-a-robust-attack-on-the-tax-gap [https://perma.cc/5GGT-WV34].

2 Daniel Reck & Jeanne Bomare, Different From You and Me: Tax Enforcement and Sophisticated Tax Evasion by the Wealthy, 2 LSE PUB. POL’Y REV., Nov. 2022, art. 6, at 2.

3 See AMERICANS FOR TAX FAIRNESS, Big Corporations Paid Shockingly Little in Taxes Last Year (Feb. 7, 2024), https://americansfortaxfairness.org /big-corporations-paid-shockingly-little-taxes-last-year/ [https://perma.cc/97P2 -Z58D]; Steve Wamhoff, Who Pays Taxes in America in 2024, INST. ON TAX’N & ECON. POL’Y (Apr. 9, 2024), https://itep.org/who-pays-taxes-in-america-in-2024/ [https://perma.cc/NCE7-G3JG]; Brandon DeBot & Chye-Ching Huang, The House Ways and Means Tax Bill Encourages Tax “Gaming,” Adds Complexity, and Increases Filing Burdens on Low- and Middle-Income Families and Workers, TAX L. CTR. (May 14, 2025), https://taxlawcenter.org/blog/the-house-ways -and-means-tax-bill-encourages-tax-gaming-adds-complexity-and-increases -filing-burdens-on-low-and-middle-income-families-and-workers [https://perma .cc/5R8Q-BMQD].

4 Sarin, supra note 1. 5 RICHARD A. MUSGRAVE, THE THEORY OF PUBLIC FINANCE: A STUDY IN PUBLIC ECONOMY 5 (1959). This statement is a simplification, though, as public economic policy involves numerous complexities and trade-offs. Musgrave distills its fundamental aims into three key objectives: optimizing resource

allocation, shaping income and wealth distribution, and fostering economic stability through sustained employment and output. See Wallace E. Oates, The Theory of Public Finance in a Federal System, 1 CAN. J. ECON. 37, 54 (1968); JAMES MIRRLEES ET AL., TAX BY DESIGN: THE MIRRLEES REVIEW 475 (2011).

6 Michael J. Graetz, Jennifer F. Reinganum & Louis L. Wilde, The Tax Compliance Game: Toward an Interactive Theory of Law Enforcement, 2 J.L. ECON. & ORG. 1, 3 (1986).

7 Eric Posner, Law and Social Norms: The Case of Tax Compliance, 86 VA. L. REV. 1781, 1784–85 (2000); Robert F. van Brederode, Normative Evaluation of Tax Law Enforcement: Legislative and Political Responses to Tax Avoidance and Evasion, 42 INTERTAX 764, 764 (2014); Joel Slemrod, Cheating Ourselves: The Economics of Tax Evasion, 21 J. ECON. PERSP. 25, 26 (2007); Juan Carlos Molero & Francesc Pujol, Walking Inside the Potential Tax Evader’s Mind: Tax Morale Does Matter, 105 J. BUS. ETHICS 151, 151 (2012); Mark Lokanan, The Morality and Tax Avoidance: A Sentiment and Position Taking Analysis, 18 PLOS ONE, July 17, 2023, at 2; Antonio Filippin, Carlo V. Fiorio & Eliana Viviano, The Effect of Tax Enforcement on Tax Morale, 32 EUR. J. POL. ECON. 320, 320 (2013); Joel Slemrod, Tax Compliance and Enforcement, 57 J. ECON. LITERATURE 904, 910 (2019) [hereinafter Compliance and Enforcement]; Leandra Lederman, The Interplay Between Norms and Enforcement in Tax Compliance, 64 OHIO ST. L.J. 1453, 1470–71 (2003).

8 Reck & Bomare, supra note 2; Doron Narotzki & Tamir Shanan, Corporate Income Tax: We Tried the Stick, How About the Carrot?, 12 MICH. BUS. & ENTREPRENEURIAL L. REV. 45, 73 (2023); DeBot & Huang, supra note 3; Sarin, supra note 1; Jane G. Gravelle, Tax Havens: International Tax Avoidance and Evasion, 62 NAT’L TAX J. 727, 732, 741 (2009). And by doing so, these taxpayers fulfill Judge Hand’s statement:

Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.

Comm’r of Internal Revenue v. Newman, 159 F.2d 848, 850–51 (2d Cir. 1947).

9 Reck & Bomare, supra note 2; DeBot & Huang, supra note 3; Brian M. Sirman, Loophole Entrepreneurship, 29 FORDHAM J. CORP. & FIN. L. 33, 39 (2023) (Though not focused on tax minimization strategies, it does briefly explore it.). For a somewhat different approach, but one that also highlights this situation and avoidance issue, see John H. Cochrane, It’s Time the US Abolished the Income Tax, CHICAGO BOOTH REV. (Feb. 12, 2024), https://www .chicagobooth.edu/review/its-time-us-abolished-income-tax [https://perma.cc /AE73-MQUW].

10 David Elkins, Embracing Tax Avoidance, 34 U. FLA. J.L. & PUB. POL’Y

327, 333 (2024).

11 Generally, game theory is a field of applied mathematics that studies how players choose strategies to achieve the best possible outcome. A game has three basic elements: (1) players, (2) strategies, and (3) payoffs. Each player chooses a strategy to maximize their payoff based on what they think others will do. In the content of taxation, game theory helps explain the dynamic between taxpayers and the government, where taxpayers decide whether to pay taxes or evade them based on the likelihood of getting caught, while the government must audit and verify tax compliance despite having limited information. See, e.g., Antônio Paulo Machado Gomes et al., A Theoretical Model to Discuss Tax Avoidance Based on Game Theory, 20 BRAZ. BUS. REV. 281, 282–84 (2023).

12 JEREMY BENTHAM, AN INTRODUCTION TO THE PRINCIPLES OF MORALS AND LEGISLATION 179 (Oxford 1907) (1823) (“The first object, it has been seen, is to prevent, in as far as it is worth while, all sorts of offences; therefore, [t]he value of the punishment must not be less in any case than what is sufficient to outweigh that of the profit of the offense.”). Bentham further explains that, “[b]y the profit of an offense, is to be understood, not merely the pecuniary profit, but the pleasure or advantage, of whatever kind it be, which as a man reaps, or expects to reap, from the gratification of the desire which prompted him to engage in the offense.” Id.

13 Id. at 2; see Gary S. Becker, Crime and Punishment: An Economic Approach, 76 J. POL. ECON. 169, 176 (1968); J.T. Manhire, Tax Compliance as a Wicked System, 18 FLA. TAX REV. 235, 246–48 (2023); Michael Doran, Tax Penalties and Tax Compliance, 46 HARV. J. ON LEGIS. 111, 111–12 (2009); MAJORIE E. KORNHAUSER, TAXPAYER ADVOCATE SERVICE, IRS, NORMATIVE AND COGNITIVE ASPECTS OF TAX COMPLIANCE: LITERATURE REVIEW AND RECOMMENDATIONS FOR THE IRS REGARDING INDIVIDUAL TAXPAYERS 2 (2007).

14 KORNHAUSER, supra note 13, at 11. 15 Becker, supra note 13. 16 Reck & Bomare, supra note 2. 17 Id.; Narotzki & Shanan, supra note 8. 18 Graetz, Reinganum & Wilde, supra note 6, at 12. 19 See, e.g., the legislative development of I.R.C. § 355, Bret Wells, Reform

of Section 355, 68 AM. U. L. REV. 447, 449–51 (2018).

20 William B. Barker, The Ideology of Tax Avoidance, 40 LOY. U. CHI. L.J.

229, 231 (2009); Narotzki & Shanan, supra note 8, at 54.

21 Narotzki & Shanan, supra note 8, at 54. 22 Id. 23 Id. 24 Stephanie Hunter McMahon, Political Hot Potato: How Closing Loopholes Can Get Policymakers Cooked, 37 J. LEGIS. 141, 143–44 (2011); Wells, supra note 19, at 512–13.

25 Compliance and Enforcement, supra note 7, at 913; Graetz, Reinganum

& Wilde, supra note 6, at 9.

I.(cid:3)TAX AVOIDANCE AS A STRATEGIC GAME: APPLYING GAME THEORY

26 IRS, Tax Cuts and Jobs Act: A comparison for businesses (Nov. 5, 2025), https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-businesses [https://perma.cc/9FBC-TRAV].

27 CHUCK MARR, BRENDAN DUKE & CHYE-CHING HUANG, CTR. ON BUDGET & POL’Y PRIORITIES NEW TAX LAW IS FUNDAMENTALLY FLAWED AND WILL REQUIRE BASIC RESTRUCTURING 1 (2018).

28 See MUSGRAVE, supra note 5, at 4–5, 14–17; LOUIS KAPLOW, THE THEORY OF TAXATION AND PUBLIC ECONOMICS 1 (2008); David A. Weisbach & Jacob Nussim, The Integration of Tax and Spending Programs, 113 YALE L.J. 955, 958 (2004); Walter J. Blum & Harry Kalven Jr., The Uneasy Case for Progressive Taxation, 19 U. CHI. L. REV. 417, 419 (1952); JOEL SLEMROD & CHRISTIAN GILLITZER, TAX SYSTEMS 4–5 (2013).

29 MARTIN J. OSBORNE, AN INTRODUCTION TO GAME THEORY 1, 4, 7 (1st ed. 2003); MARTIN J. OSBORNE & ARIEL RUBINSTEIN, A COURSE IN GAME THEORY 179–80 (1994); GIACOMO BONANNO, GAME THEORY 13 (3d ed. 2024); see Larry Samuelson, Evolution and Game Theory, 16 J. ECON. PERSPS. 47, 61–62 (2002); ARIEL RUBINSTEIN, Game Theory: A Beautiful Mind, in ECONOMIC FABLES 93, 102 (2012); Robert Gibbons, An Introduction to Applicable Game Theory, 11 J. ECON. PERSPS. 127, 128 (1997).

30 See Becker, supra note 13, at 203; Graetz, Reinganum & Wilde, supra note 6, at 26; Joel Slemrod & Shlomo Yitzhaki, Tax Avoidance, Evasion, and Administration, in 3 HANDBOOK OF PUBLIC ECONOMICS 1425, 1426 (Alan J. Auerbach & Martin Feldstein eds., 2002); Slemrod, supra note 7, at 36.

31 Narotzki & Shanan, supra note 8, at 54. 32 Carrie Brandon Elliot, Game Theory and Tax Systems, TAX NOTES (Sep. 10, 2019), https://www.taxnotes.com/opinions/game-theory-and-tax-systems/2019 /09/10/29xpx [https://perma.cc/C5UX-92ZT].

33 See, e.g., Narotzki & Shanan, supra note 8, at 56. 34 See Theodore P. Seto, Four Principles of Optimal Tax System Design, 44

VA. TAX REV. 71, 79 (2024).

35 Id. 36 Id. at 80. 37 See id. at 79–80 (distinguishing lawful sheltering from evasion and noting that sheltering threatens the system more because it is technically legal). 38 Kay Blaufus et al., Does Legality Matter? The Case of Tax Avoidance and

Evasion, 127 J. ECON. BEHAV. & ORG. 182, 193 (2016).

39 Id. 40 Narotzki & Shanan, supra note 8, at 54.

41 John F. Nash, Jr., Equilibrium Points in n-Person Games, 36 PROCS. NAT’L ACAD. SCIS. 48 (1950); Roger B. Myerson, Nash Equilibrium and the History of Economic Theory, 37 J. ECON. LITERATURE 1067, 1077 (1999); Charles A. Holt, Alvin E. Roth & Vernon L. Smith, The Nash Equilibrium: A Perspective, 101 PROCS. NAT’L ACAD. SCIS. 3999, 3999 (2004); OSBORNE, supra note 29; OSBORNE & RUBINSTEIN, supra note 29; BONANNO, supra note 29, at 1; Samuelson, supra note 29, at 59; RUBINSTEIN, supra note 29, at 101–02.

42 Rational choice is a decision-making theory in economics and social sciences that assumes individuals act in their own self-interest, making choices that maximize their benefits while minimizing costs. It is based on the idea that people systematically weigh available options, considering incentives, risks, and potential outcomes before making a decision. See Becker, supra note 13, at 170–80; DOUGLAS G. BAIRD, ROBERT H. GERTNER & RANDAL C. PICKER, GAME THEORY AND THE LAW 80–81 (1994).

43 Nash Equilibrium is a concept in game theory where no player has an incentive to deviate from their chosen strategy, assuming all other players maintain theirs. In this state, each participant’s decision is optimal given the decisions of others, leading to a stable outcome where no unilateral change improves an individual’s position. Nash, supra note 41.

44 Information asymmetry is a concept in economics, law, and finance, mostly in contexts of contract theory, taxation, and regulatory enforcement. It occurs when one party in a transaction or decision-making process has more or better information than the other, which creates an imbalance that may lead to inefficiencies, market failures, or strategic manipulation, as the betterinformed party can exploit their advantage. See RICHARD A. POSNER, ECONOMIC ANALYSIS OF LAW 166 (3d ed. 1986); see also, e.g., Paul J. Beck & Woon-Oh Jung, Taxpayers’ Reporting Decisions and Auditing Under Information Asymmetry, 64 ACCT. REV. 468, 469 (1989) (explaining how information asymmetry between taxpayers and tax enforcement agencies’ audit technology allows the agency to avoid pre-committing to an audit probability schedule).

45 OSBORNE, supra note 29; OSBORNE & RUBINSTEIN, supra note 29; BONANNO, supra note 29; Samuelson, supra note 29, at 47–48; RUBINSTEIN, supra note 29, at 101–02.

TABLE 1 TAXPAYER DECISION MATRIX

46 Reck & Bomare, supra note 2.

47 DMYTRO SOKOLOVSKYI, GAME-THEORETIC MODEL OF TAX EVASION: ANALYSIS OF AGENTS’ INTERACTION AND OPTIMIZATION OF TAX BURDEN 15–16 (Munich Personal RePEc Archive Paper No. 86415, 2018), https://mpra.ub.uni-muen chen.de/86415/ [https://perma.cc/W8AL-GYJA].

48 Id. at 11–12 (explaining that the equilibrium analysis is framed in terms of the product (cid:469)R, where (cid:469) is the principal’s tax-burden parameter and R reflects the taxpayer’s productivity). When (cid:469) changes, the inequalities defining which equilibrium holds can flip, meaning that the optimal strategy of both the taxpayer (evade or comply) and the tax authority (inspect or not inspect) can change. Id.

49 See id. at 6–9; Nash, supra note 41. 50 OSBORNE, supra note 29; OSBORNE & RUBINSTEIN, supra note 29;

BONANNO, supra note 29, at 41–45; RUBINSTEIN, supra note 29, at 101–02.

51 Holt, Roth & Smith, supra note 41; Katherine Baer, Patricio Barra & Juan Carlos Benitez, Closing the Gap: How Tax Administration Performance Shapes Compliance 7 (IMF Working Paper, WP/25/209, 2025).

52 See Holt, Roth & Smith, supra note 41; Kathleen M. Carley & Daniel T. Maxwell, Understanding Taxpayer Behavior and Assessing Potential IRS Interventions Using Multiagent Dynamic-Network Simulation, reprinted in RECENT RESEARCH ON TAX ADMINISTRATION AND COMPLIANCE: SELECTED PAPERS GIVEN AT THE 2006 IRS RESEARCH CONFERENCE 93, 93 (2006).

53 See Holt, Roth & Smith, supra note 41; Baer, Barra & Benitez, supra

note 51, at 5–6.

54 Slemrod & Yitzhaki, supra note 30, at 1464. 55 Kim Bloomquist, Tax Compliance as an Evolutionary Coordination Game:

An Agent-Based Approach, 39 PUB. FIN. REV. 25, 44 (2011).

56 SOKOLOVSKYI, supra note 47, at 8–12; Atsushi Kajii & Stephen Morris, The Robustness of Equilibria to Incomplete Information, 65 ECONOMETRICA 1283, 1283–84 (1997).

57 Nash, supra note 41; SOKOLOVSKYI, supra note 47, at 9 (“Despite can be always build [sic] an equilibrium mixed mutual strategy, we emphasize the equilibrium in pure strategies, because the policy of using mixed strategies to solve the problem of finding equilibriums does not seem to be enough appropriate.”).

58 Sagit Leviner, A New Era of Tax Enforcement: From ‘Big Stick’ to Responsive Regulation, 42 U. MICH. J. L. REFORM 381, 395–97 (2009); SOKOLOVSKYI, supra note 47, at 5–6.

59 See Taesung Kim & Nicholas C. Yannelis, Existence of Equilibrium in Bayesian Games with Infinitely Many Players, 77 J. ECON. THEORY 330, 331 (1997).

60 Nash, supra note 41; SOKOLOVSKYI, supra note 47, at 10–12. 61 Robert Gibbons, An Introduction to Applicable Game Theory, 11 J. ECON.

PERSP. 127, 127–49 (1997); BONANNO, supra note 29, at 528–29.

62 Kim & Yannelis, supra note 59; Gibbons, supra note 61, at 128–30. 63 Kim & Yannelis, supra note 59; Gibbons, supra note 61, at 140;

SOKOLOVSKYI, supra note 47, at 4–5.

64 See Kim & Yannelis, supra note 59 (defining conditional expected utility as an agent’s expected payoff from a chosen action, averaged over states consistent with the agent’s information and beliefs under a given strategy profile, such that the agent’s best response is determined conditional on that information); Hans Gribnau, Corporate Social Responsibility and Tax Planning: Not by Rules Alone, 24 SOC. & LEGAL STUD. 225, 230 (2015).

65 Sarah B. Lawsky, Modeling Uncertainty in Tax Law, 65 STANFORD L. REV. 241, 243 (2013); Paul J. Beck & Woon-Oh Jung, Taxpayer Compliance Under Uncertainty, 8 J. ACCT. & PUB. POL’Y 1, 2–4 (1989) [hereinafter Compliance Under Uncertainty].

66 Lawsky, supra note 65; Compliance Under Uncertainty, supra note 65,

at 1, 3–4, 6.

67 See Compliance Under Uncertainty, supra note 65, at 2. 68 See Carley & Maxwell, supra note 52, at 94–95 (explaining that effective governmental intervention depends on the ability of the government to assess such behaviors).

69 See Charles E. Lindblom, The Science of “Muddling Through,” 19 PUB. ADMIN. REV. 79, 79–88 (1959); Charles E. Lindblom, Still Muddling, Not Yet Through, 39 PUB. ADMIN. REV. 517, 517–26 (1979). Lindblom introduced a critique of the rational-comprehensive model of policymaking and introduced an alternative approach called the method of successive limited comparisons, often referred to as incrementalism or “muddling through.” Lindblom argued that incrementalism is not a failure of method but rather a necessary approach for dealing with complex policy problems, which in our context fits perfectly. While this approach has limitations, Lindblom argued this is often the most viable decision-making strategy given political, informational, and institutional constraints. His work remains highly influential in political science, economics, and public administration, shaping how policymakers understand the decisionmaking process. However, in the tax-policy context this approach leads to further complications and inefficiencies. Though this is not the core of the argument or analysis of this work, the research on this issue certainly carries weight. For a more general overview of the different approaches and scholarly work, see Rune Premfors, Charles Lindblom and Aaron Wildavsky, 11 BRIT. J. POL. SCI. 201, 201–25 (1981).

70 See Arthur Snow & Ronald S. Warren, Jr., Audit Uncertainty, Bayesian Updating, and Tax Evasion, 35 PUB. FIN. REV. 555, 559 (2007) (“We show that under widely accepted conditions on risk preferences and empirically relevant assumptions about the probability of an audit, tax evasion is greater in this environment than it would be if the taxpayer did not update beliefs about the probability of being audited based on previous audit experience.”).

71 Eric Lopresti, What’s Wrong with Strict Liability and Nonmonetary Penalties? The Case for Reasonable Fault-Based Civil Tax Penalties and Procedural Protections, 72 TAX LAW. 589, 595–96 (2019).

72 See Slemrod & Yitzhaki, supra note 30, at 1432. 73 See Martin Daks, NJ CPAs warn businesses about aggressive tax planning risks, NJBIZ (Jan. 12, 2026), https://njbiz.com/nj-cpas-warn-aggressive -tax-planning-irs-audits/ [https://perma.cc/P9AN-BXB9].

74 See Beck & Jung, supra note 44, at 472. 75 See id. at 470, 472. 76 ANA ESPINOLA-ARREDONDO & FÉLIX MUÑOZ-GARCÍA, Bayesian Nash Equilibrium, in GAME THEORY 253, 259 (Ana Espinola-Arredondo & Félix Muñoz-García eds., Palgrave Macmillan 2023).

77 Mark B. Cronshaw & James Alm, Tax Compliance with Two-Sided Un-

certainty, 23 PUB. FIN. REV. 139, 140–41 (1995).

78 CHUNG K. KIM & WILLIAM S. WALLER, A Behavioral Accounting Study of Strategic Interaction in a Tax Compliance Game, in 3 EXPERIMENTAL BUSINESS RESEARCH: MARKETING, ACCOUNTING, AND COGNITIVE PERSPECTIVES 35, 54 (Rami Zwick & Amnon Rapoport eds., 2005).

79 Id. at 51, 54.

TABLE 2 TAXPAYER DECISION MATRIX

80 (cid:54)(cid:72)(cid:72)(cid:3)(cid:76)(cid:71)(cid:17) at 54.

81 Cronshaw & Alm, supra note 77. 82 Beck & Jung, supra note 44, at 482. 83 See id. at 469; James Alm, Uncertain Tax Policies, Individual Behavior, and Welfare, 78 AM. ECON. REV. 237, 237 (1988) (“Uncertainty about income tax policies is often cited as a particular problem for individuals. . . . Uncertain tax policies make individual choices in a variety of dimensions more difficult.”); James Alm, Betty Jackson & Michael McKee, Institutional Uncertainty and Taxpayer Compliance, 82 AM. ECON. REV. 1018, 1018 (1992) (“[A]nother potential government strategy has begun to emerge from theoretical analysis of the compliance decision: taxpayer uncertainty about enforcement and tax policies.”); David S. Bizer & Kenneth L. Judd, Taxation and Uncertainty, 79 AM. ECON. REV. 331, 332 (1989).

84 See Beck & Jung, supra note 44, at 469–70. 85 See, e.g., Kyle D. Logue, Tax Law Uncertainty and the Role of Tax Law

Insurance, 25 VA. TAX REV. 339, 373–74 (2005).

86 See WILLLIAM G. GALE, RADICAL SIMPLIFICATION OF THE INCOME TAX: ISSUES AND OPTIONS 3 (2001). See generally Baer, Barra & Benitez, supra note 51 (general study on issues of tax uncertainty); Sarah B. Lawsky, Probably? Understanding Tax Law’s Uncertainty, 157 U. PA. L. REV. 1017 (2009) (analysis of probability statements in U.S. tax law).

87 Tao Chen & Chen Lin, Does Information Asymmetry Affect Corporate

Tax Aggressiveness?, 52 J. FIN. QUANTITATIVE ANALYSIS 2053, 2057 (2017).

88 Alm, supra note 83, at 244. 89 See Norman Gemmell & John Hasseldine, Taxpayers’ Behavioural Responses and Measures of Tax Compliance ‘Gaps’: A Critique and a New Measure, 35 FISCAL STUD. 272, 295 (2014).

90 See generally OECD, ENGAGING WITH HIGH NET WORTH INDIVIDUALS ON TAX COMPLIANCE (2009) (detailing the particular challenges and complexities of administering taxes on high-net-worth individuals).

91 Seth Hanlon, Unrigging the Economy Will Require Enforcing the Tax Laws, CTR. FOR AM. PROGRESS (2020), https://www.americanprogress.org/article/un rigging-economy-will-require-enforcing-tax-laws/ [https://perma.cc/7FM3-C6SY].

92 See Chen & Lin, supra note 87, at 2069.

93 MARR, DUKE & HUANG, supra note 27 (“[T]he complex, hastily drafted legislation will likely trigger a surge in tax gaming that could pose a risk to the integrity of the U.S. tax system, as wealthy taxpayers and corporations exploit newly created loopholes that tax experts have already identified and uncover other loopholes that the hasty drafting unwittingly created.”).

94 While various equilibrium models attempt to capture strategic interactions under incomplete information, including Hörner and Lovo’s belief-free equilibrium framework, which eliminates the need for belief tracking and Bayesian updating, their approach is primarily designed for settings where players maintain consistent strategies over time. See Johannes Hörner & Stefano Lovo, Belief-Free Equilibria in Games with Incomplete Information, 77 ECONOMETRICA 453, 454–55 (2009). However, in the context of taxation, sophisticated players, such as HNW individuals and perhaps more so, corporate actors, frequently alter their strategic behavior in response to evolving market conditions, regulatory shifts, and internal business objectives. For instance, Taboola, Inc., traditionally known for its native advertising business, recently launched “Realize,” a performance marketing platform designed to help advertisers scale campaigns outside of search and social media, signaling a significant shift in its business strategy. See Matthew Eaton, Taboola finds its ‘Amazon moment’ with new performance ad platform Realize, MARKETING-INTERACTIVE (Feb. 27, 2025), https://www.marketing-interactive.com/taboola-finds-its-amazon-moment -with-new-performance-ad-platform-realize [https://perma.cc/9KGV-H9QT]. These ongoing adjustments inherently involve belief formation, as firms assess tax authorities’ enforcement tendencies, legislative trends, and competitor actions. Given this dynamic, it is unclear whether a belief-free equilibrium framework can fully capture the complexity of tax compliance, where strategic adaptation is often driven by expectations rather than purely static optimization.

95 Wells, supra note 19, at 510–12 (criticizing Section 355 by outlining ways corporations can continue to abuse sheltering tactics); Chin-Chin Yap, The Tax Shelter Game, 59 TAX LAW. 1021, 1034 (2006) (pointing out the IRS has not even identified long-term goals for enforcement); see also David A. Weisbach, Ten Truths About Tax Shelters, 55 TAX L. REV. 215, 242–44 (2002) (calling for greater research into the breadth of tax havens).

96 MARR, DUKE & HUANG, supra note 27, at 20–21 (criticizing and detailing

how the 2018 bill would continue to allow corporations to evade tax liability).

97 Wells, supra note 19, at 458–59; Yap, supra note 95. 98 Reck & Bomare, supra note 2, at 6; Narotzki & Shanan, supra note 8, at 54. 99 See Hans Gribnau, Corporate Social Responsibility and Tax Planning: Not by Rules Alone, 24 SOC. & LEGAL STUD. 225, 230 (2015) (explaining the information asymmetry policy makers are faced with).

100 Id. at 232–33. 101 Compliance and Enforcement, supra note 7, at 929–30; Narotzki & Shanan,

supra note 8, at 65–66.

102 Gribnau, supra note 99, at 226; MARR, DUKE & HUANG, supra note 27,

at 3.

II.(cid:3)THE STRUCTURAL LIMITS OF TAX ENFORCEMENT

103 Slemrod, supra note 7, at 30. 104 Gribnau, supra note 99. 105 See Kim & Yannelis, supra note 59. 106 Id. 107 Compliance and Enforcement, supra note 7, at 909; Phil Swagel, The Effects of Increased Funding for the IRS, CONG. BUDGET OFF., https://www .cbo.gov/publication/57444 [https://perma.cc/787D-Y35M].

108 See William C. Boning et al., Heard it Through the Grapevine: The Direct and Network Effects of a Tax Enforcement Field Experiment on Firms, 190 J. PUB. ECON., 2020, at 10–21 (concluding that by auditing larger firms with a greater network, there is a corresponding “network effect” that makes their subsidiaries more likely to comply); BRENDAN MCDERMOTT, CONG. RSCH. SERV., IF12521, DISTRIBUTION OF IRS AUDITS BY INCOME AND RACE 1 (2023) (showing that the IRS audits high-income taxpayers at a higher rate).

109 SHELLEY C. RHOADES-CATANACH, THE TAX COMPLIANCE AND AUDIT POLICY IMPLICATIONS OF COSTLY FALSE DETECTION ERRORS 6–11 (Sep. 1996), https://ssrn.com/abstract=15051 [https://perma.cc/PYV6-TVEF].

110 Id. at 18. 111 Id. at 2. 112 Id. 113 See id. at 2, 18. 114 Compliance and Enforcement, supra note 7, at 944–47; RHOADES-

CATANACH, supra note 109, at 2.

115 Compliance and Enforcement, supra note 7, at 946–47. 116 MCDERMOTT, supra note 108, at 21–24, 29–30. 117 Paul Kiel & Jesse Eisinger, Who’s More Likely to Be Audited: A Person Making $20,000—or $400,000?, PROPUBLICA (Dec. 12, 2018), https://www.pro publica.org/article/earned-income-tax-credit-irs-audit-working-poor [https:// perma.cc/LPY3-RM2A]; IRS, Compliance presence (May 29, 2025), https://www .irs.gov/statistics/compliance-presence [https://perma.cc/RSR8-V3AK].

118 See Louis Kaplow, How Tax Complexity and Enforcement Affect the Eq-

uity and Efficiency of the Income Tax, 49 NAT’L TAX J. 135, 138 (1996).

119 Gribnau, supra note 99, at 228–29. 120 Reck & Bomare, supra note 2, at 4–8; Narotzki & Shanan, supra note 8,

at 49; Gribnau, supra note 99, at 233.

121 H.R. 3838, 99th Cong. (1986); Kimberly A. Clausing, Profit Shifting Be-

fore and After the Tax Cuts and Jobs Act, 73 NAT’L TAX J. 1233, 1234 (2020).

122 STAFF OF J. COMM. ON TAX’N, 115TH CONG., MACROECONOMIC ANALYSIS OF THE CONFERENCE AGREEMENT FOR H.R.1, THE “TAX CUTS AND JOBS ACT” 4 (2017).

123 Id.; I.R.C. § 951A. 124 Clausing, supra note 121, at 1260. 125 Id. at 1257. 126 I.R.C. § 250(a)(1). 127 Dhammika Dharmapala, The Consequences of the Tax Cut and Jobs Act’s International Provisions: Lessons from Existing Research, 71 NAT’L TAX J. 707, 708–09 (2018).

128 Gribnau, supra note 99, at 234. 129 Id.; Compliance and Enforcement, supra note 7, at 941 n.49; MIRRLEES

ET AL., supra note 5, at 118, 453.

130 MIRRLEES ET AL., supra note 5, at 104.

131 Compliance and Enforcement, supra note 7, at 941 n.49. 132 Gravelle, supra note 8, at 732, 741. 133 Narotzki & Shanan, supra note 8, at 56. 134 IRS, IRS Announces New Steps to Combat Abusive Use of Partnerships; Agency’s Focus Intensifies as New Guidance Closes Loopholes Worth Tens of Billions (June 17, 2024) [hereinafter Steps to Combat Abusive Use of Partnerships], https://www.irs.gov/newsroom/irs-announces-new-steps-to-combat-abu sive-use-of-partnerships-agencys-focus-intensifies-as-new-guidance-closes-loop holes-worth-tens-of-billions [https://perma.cc/U4YS-E4BP].

135 Narotzki & Shanan, supra note 8, at 60. 136 Id. at 57–58.

137 See, e.g., Steps to Combat Abusive Use of Partnerships, supra note 134. 138 Gravelle, supra note 8, at 743; Eduardo Baistrocchi, Global Tax Hubs, 27 FLA. TAX REV. 407, 432–33 (2024); DEP’T OF THE TREASURY, THE PROBLEM OF CORPORATE TAX SHELTERS: DISCUSSION, ANALYSIS AND LEGISLATIVE PROPOSALS 6 (July 1999).

139 Baistrocchi, supra note 138, at 432, 454. 140 Gravelle, supra note 8; Sebastian Beer, Ruud de Mooij & Li Liu, International Corporate Tax Avoidance: A Review of the Channels, Magnitudes, and Blind Spots 10–11 (IMF, Working Paper WP/18/168, 2018). 141 E.g., Blaufus et al., supra note 38, at 183–84, 188, 196. 142 Id. at 183–84. 143 Id. at 190.

144 See, e.g., Doron Narotzki & Melanie G. McCoskey, Code Section 304: The Gift That Keeps on Giving, 17 ATA J. LEGAL TAX RSCH. 25, 26 (2019) (describing how the TCJA itself made an anti-planning provision to become a tax planning tool).

145 Tracey Bowler, Countering Tax Avoidance in the UK: Which Way Forward? 2 (Inst. for Fiscal Stud., Tax L. Rev. Comm. Discussion Paper No. 7, 2009), https://ifs.org.uk/sites/default/files/outpu_url_files/dp7.pdf [https://perma .cc/ZE6X-YFU7].

146 See id. at 35, 37. 147 ALLAN M. FELDMAN & ROBERTO SERRANO, WELFARE ECONOMICS AND SOCIAL CHOICE THEORY 59 (2d ed. 2006); Joaquim Silvestre, The Market-Power Foundations of Macroeconomic Policy, 31 J. ECON. LITERATURE 105, 105–06 (1993).

148 See Andrew Chamberlain, What Does ‘Economic Distortion’ Look Like?, TAX FOUND. (Dec. 18, 2006), https://taxfoundation.org/blog/what-does-economic

-distortion-look/ [https://perma.cc/85UW-TUHG]. For a very general reading on “externalities,” see Thomas Helbling, Externalities: Prices Do Not Capture All Costs, IMF, https://www.imf.org/en/Publications/fandd/issues/Series/Back -to-Basics/Externalities [https://perma.cc/DW7U-P5XB].

149 See Helbling, supra note 148 (discussing externalities created by lack of information and “decision makers” maximizing their benefits while creating burdening others with such created externalities).

150 I.R.C. § 199A. 151 § 965. 152 See TAX POL’Y CTR., What is the effect of a lower tax rate for capital gains? (Jan. 2024), https://taxpolicycenter.org/briefing-book/what-effect-lower -tax-rate-capital-gains [https://perma.cc/WAT8-Q276]. For a general description of stepped-up capital gains tax, see PETER G. PETERSON FOUND., What Is SteppedUp Basis on Capital Gains and How Does It Affect the Federal Budget? (Nov. 26, 2024), https://www.pgpf.org/article/what-is-the-stepped-up-basis-and-how-does -it-affect-the-federal-budget/ [https://perma.cc/PN5Q-HM2S].

153 Eileen B. Trost, The Truth About Trusts, 32 FAM. ADVOC. 26, 29–30 (2010). For a general reading on some of the tax issues we face with regard to taxing HNW individuals, see Daniel J. Hemel & Robert Lord, Revitalizing the Generation-Skipping Transfer Tax 5 (Univ. of Chicago, Pub. L. and Legal Theory Working Paper No. 790, 2021).

154 For general explanations of GRAT, see Daniel J. Hemel & Robert Lord, Closing Gaps in the Estate and Gift Tax Base 2–3 (Univ. of Chicago CoaseSandor Institute for Law & Economics Research Paper No. 937, 2021) [hereinafter Closing Gaps]; Jonathan G. Blattmachr & Diana S.C. Zeydel, Evaluating the Potential Success of a GRAT Against Competing Strategies to Transfer Wealth, 47 TAX MGMT. MEMO 19, 20–21 (2006); Lori Litan, Grantor Trusts:

Tax and Estate Planning with GRATs and IDGTs, CLIFTONLARSONALLEN (July 27, 2016), https://claconnect.com/en/resources/articles/grantor-trusts-tax -and-estate-planning-with-grats-and-idgts [https://perma.cc/4BY6-F3JN].

155 Closing Gaps, supra note 154, at 4–5; Daniel L. Ricks, I Dig It, But Congress Shouldn’t Let Me: Closing the IDGT Loophole, 36 ACTEC L.J. 641, 645 (Apr. 11, 2011); Trost, supra note 153, at 29.

156 See Hemel & Lord, supra note 153, at 20–21. 157 Richard C. Sansing, Economic Foundations of Valuation Discounts, 21

J. AM. TAX’N ASS’N 28, 28 (1999).

158 See Closing Gaps, supra note 154, at 2; Hemel & Lord, supra note 153,

at 11; Trost, supra note 153, at 30.

159 See Emmanuel Saez & Gabriel Zucman, The Rise of Income and Wealth Inequality in America: Evidence from Distributional Macroeconomic Accounts (Nat’l Bureau of Econ. Rsch., Working Paper No. 27922, 2020), https://ssrn .com/abstract=3709612 [https://perma.cc/2PY9-PGPK]. 160 See FELDMAN & SERRANO, supra note 147, at 63. 161 Id. at 63, 66, 68. 162 Id. at 66; see also Marco Battaglini & Stephen Coate, Pareto Efficient Income Taxation with Stochastic Abilities, 92 J. PUB. ECON. 844, 858 (2008) (explaining that Pareto efficiency can be achieved when such redistribution is not overly aggressive).

163 Marios Karabarbounis, How Can We Make a Progressive Tax System More Efficient?, FED. RSRV. BANK OF RICHMOND (Aug. 2024), https://www.rich mondfed.org/publications/research/economic_brief/2024/eb_24–26 [https://perma .cc/P2N4-UJ4D]; see IMF STAFF, FISCAL POLICY AND INCOME INEQUALITY, POLICY PAPER 17 (Jan. 23, 2014); JOSH BIVENS, ECON. POL’Y INST., PROGRESSIVE REDISTRIBUTION WITHOUT GUILT 6, 28–29 (2016).

164 See David Berger et al., Monopsony Amplifies Distortions from Progres-

sive Taxes, 114 AM. ECON. ASS’N PAPERS & PROC. 555, 555 (2024).

165 Thomas Piketty & Emmanuel Saez, Optimal Labor Income Taxation, in 5 HANDBOOK OF PUBLIC ECONOMICS 391, 398, 400 (Alan J. Auerbach et al. eds., 2013).

166 See id. at 410, 417, 447, 452. 167 See id. at 417–19.

168 Id. at 392, 398, 458. 169 Id. at 395; see also Doron Narotzki, Tamir Shanan & Julianne Jones, Beyond Comprehension: Why Tax Code Complexity Necessitates IRS Deference, 22 UC L. BUS. J. 57, 65 (2025) (explaining the reasons behind the repeal of safe harbor leasing).

170 Narotzki, Shanan & Jones, supra note 169, at 70. 171 See id. 172 See, e.g., id., where the authors demonstrate that even the TCJA, a tax reform intended to simplify the code, failed to do so. Instead, it reinforced inefficiencies and further complicated the tax system. Id.

173 Narotzki & Shanan, supra note 8, at 54. 174 Id. at 56, 68, 70.

175 (cid:54)(cid:72)(cid:72)(cid:3)(cid:86)(cid:88)(cid:83)(cid:85)(cid:68)(cid:3)Section II.A. 176 (cid:54)(cid:72)(cid:72)(cid:3)(cid:86)(cid:88)(cid:83)(cid:85)(cid:68)(cid:3)Sections II.A–D. 177 (cid:55)(cid:75)(cid:72)(cid:3)(cid:53)(cid:76)(cid:70)(cid:75)(cid:3)(cid:42)(cid:72)(cid:87)(cid:3)(cid:53)(cid:76)(cid:70)(cid:75)(cid:72)(cid:85)(cid:15)(cid:3)(cid:39)(cid:72)(cid:73)(cid:76)(cid:70)(cid:76)(cid:87)(cid:86)(cid:3)(cid:42)(cid:72)(cid:87)(cid:3)(cid:37)(cid:76)(cid:74)(cid:74)(cid:72)(cid:85)(cid:29)(cid:3)(cid:43)(cid:82)(cid:90)(cid:3)(cid:55)(cid:68)(cid:91)(cid:3)(cid:38)(cid:88)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:92)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:39)(cid:85)(cid:76)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:49)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:39)(cid:72)(cid:69)(cid:87)(cid:29)(cid:3)(cid:43)(cid:72)(cid:68)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:37)(cid:72)(cid:73)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:54)(cid:17)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:17)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) (cid:37)(cid:88)(cid:71)(cid:74)(cid:72)(cid:87), 118th Cong. 75 (2023) (statement of Samantha Jacoby, Senior Tax Legal Analyst, Ctr. on Budget and Pol’y Priorities) [hereinafter (cid:45)(cid:68)(cid:70)(cid:82)(cid:69)(cid:92)(cid:3)(cid:55)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:82)(cid:81)(cid:92)].

III.(cid:3)RETHINKING THE TAX FRAMEWORK TO REDUCE AVOIDANCE

178 See discussion supra Sections II.A–C, E. 179 Dwyer Gunn, Efforts to Curb Tax Avoidance Offshore Paid Off, To a Degree, NAT’L BUREAU OF ECON. RSCH. (Apr. 30, 2018), https://nber.org/digest /may18/efforts-curb-tax-avoidance-offshore-paid-degree [https://perma.cc /8U5L-S3NK]; U.N., DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS, International tax cooperation: International efforts to Combating tax avoidance and evasion (Oct. 3, 2024), https://financing.desa.un.org/iatf/action-areas/domestic -public-resources/international-tax-cooperation-international-efforts-combat ing-tax-avoidance-and-evasion [https://perma.cc/4MBE-2ZU8].

180 See Jialu L. Streeter, How Do Tax Policies Affect Individuals and Businesses?, STAN. UNIV. INST. FOR ECON. POL’Y RSCH. (Oct. 2022), https://siepr .standford.edu/publications/policy-brief/how-do-tax-policies-affect-individuals -and-businesses [https://perma.cc/G94F-UXC2]; Jacoby Testimony, supra note 177; GALE, supra note 86, at 9.

181 Reuven S. Avi-Yonah, The Three Goals of Taxation, 60 TAX L. REV. 1, 5,

21–24 (2006).

182 E.g., id. at 23.

183 U.S. GOV’T ACCOUNTABILITY OFF., GAO-08-751, TAX EXPENDITURES: BACKGROUND AND EVALUATION CRITERIA AND QUESTIONS 1, 8, 12–13 (2012); THOMAS L. HUNGERFORD, CONG. RSCH. SERV. RL33641, TAX EXPENDITURES: TRENDS AND CRITIQUES 10–11 (2006); see William McBride, Cleaning Up the Tax Code Could Raise Trillions for Tax Reform, TAX FOUND. (Feb. 6, 2025), https://taxfoundation.org/blog/tax-spending-offset-tax-custs/ [https://perma.cc /LRU4-CPAL]; Seth Hanlon, Six Principles for Tax Expenditure Reform, CTR. FOR AM. PROGRESS (Oct. 20, 2011), https://www.americanprogress.org/article /six-principles-for-tax-expenditure-reform/ [https://perma.cc/4SUY-TUC4].

184 U.S. GOV’T ACCOUNTABILITY OFF., supra note 183. 185 See U.S. GOV’T ACCOUNTABILITY OFF., GAO-10-136, TAX POLICY: THE RESEARCH TAX CREDIT’S DESIGN AND ADMINISTRATION CAN BE IMPROVED 13–16 (explaining the corporate dominance in R&D credit claims).

186 SAMANTHA JACOBY, INTERNATIONAL TAX REFORM PROPOSALS WOULD LIMIT OVERSEAS PROFIT SHIFTING, END “RACE TO THE BOTTOM” 2–3 (Ctr. on Budget and Pol’y Priorities 2022); JANE G. GRAVELLE, CONG. RSCH. SERV., R40623, TAX HAVENS: INTERNATIONAL TAX AVOIDANCE AND EVASION 1–3 (2022). For a general overview of harmful tax practices in Europe, see EUR. NETWORK ON DEBT AND DEV., TAX GAMES: THE RACE TO THE BOTTOM 22, 118 (2017).

187 See JACOBY, supra note 186 (saying the GILTI has “serious design flaws”). 188 OECD, HYBRID MISMATCH ARRANGEMENTS: TAX POLICY AND COMPLIANCE ISSUES 11 (2012) (explaining hybrid mismatches and their efficiency incentives).

189 Dhammika Dharmapala, Overview of the Characteristics of Tax Havens (CESifo Working Paper No. 10411, 2023), https://www.cesifo.org/en/publica tions/2023/working-paper/overview-characteristics-tax-haven [https://perma .cc/SM4K-Y3XD]; see Josh Katz, 10 Best Tax Haven Countries for US Citizens in 2024, UNIVERSAL TAX PROS. (Jan. 15, 2026), https://universaltaxprofessionals

.com/10-best-tax-havens-for-us-citizens/ [https://perma.cc/CU9Q-Y5TY]; Nicholas Shaxson, Tackling Tax Havens, FIN. & DEV. MAG., Sep. 2019, at 6, 7 (showing tax havens cost governments upwards of $500 billion per year).

190 TAX JUST. NETWORK, What is profit shifting?, https://taxjustice.net/faq /what-is-profit-shifting/ [https://perma.cc/F6M5-RXFN]; see Simeon Djankov, How do companies avoid paying international taxes?, PETERSON INST. FOR INT’L ECON. (Sep. 3, 2021), https://www.piie.com/blogs/realtime-economics/2021/how -do-companies-avoid-paying-international-taxes [https://perma.cc/92Q2-WY67] (describing the practice of price manipulation used by multinational firms); Sara Dillon, Tax Avoidance, Revenue Starvation and the Age of the Multinational Corporation, 50 INT’L L. 275, 276 (2017) (explaining European forms that have helped U.S. multinationals avoid billions of dollars in tax, affecting people across the globe); Kimberly Clausing, The US Tax System Incentivizes Offshoring Profits to Low-Tax Jurisdictions, PETERSON INST. FOR INT’L ECON. (Apr. 26, 2023), https://www.piie.com/research/piie-charts/2023/us-tax-system -incentivizes-offshoring-profits-low-tax-jurisdictions -G2NR] (showing popular offshore locations offering extremely low corporate effective tax rates); Siqalane Taho, MNEs Shift Profits to Low-Tax Jurisdictions Despite BEPS: Report, INT’L TAX REV. (Nov. 21, 2022), https://www.interna tionaltaxreview.com/article/2awyv7z7bxd7zmzxqqfpc/mnes-shift-profits-to-low -tax-jurisdictions-despite-beps-report [https://perma.cc/6JZS-AYMD] (discussing related party revenue and evidence of tax planning). But see Aqib Aslam & Maria Coelho, The Benefits of Setting a Lower Limit on Corporate Taxation, IMF BLOG (June 9, 2021), https://www.imf.org/en/Blogs/Articles/2021/06/09 /the-benefits-of-setting-a-lower-limit-on-corporate-taxation [https://perma.cc /3KP5-ZS6B] (discussing the implications of a minimum tax that broaden the corporate tax base); PENN WHARTON U. PA., Profit Shifting and the Global Minimum Tax (July 21, 2021), https://budgetmodel.wharton.upenn.edu/issues /2021/7/21/profit-shifting-and-the-global-minimum-tax [https://perma.cc/CYZ7 -N9SF] (explaining how the enactment of proposed changes to the global minimum tax would add significant changes in the taxation of U.S. multinationals).

[https://perma.cc/C2Q6

191 I.R.C. §§ 951A, 250. 192 William G. Gale & Claire Haldeman, Taxing Business: The TCJA and What Comes Next, TAX NOTES (June 28, 2021), https://www.taxnotes.com/taxnotes-today-global/tax-cuts-and-jobs-act/taxing-business-tcja-and-what-comes -next/2021/06/28/76pfd [https://perma.cc/56ZA-8BUG]; see Seth Hanlon & Galen Hendricks, Addressing Tax System Failings That Favor Billionaires and Corporations, CTR. FOR AM. PROGRESS (Sep. 3, 2021), https://www.american progress.org/article/addressing-tax-system-failings-favor-billionaires-corpora tions/ [https://perma.cc/8FF6-SSXK] (explaining the remaining advantages of deferred taxes while adhering to the insurance that capital gains of the

wealthy would be eventually taxed); MATTHEW GARDNER, LORENA ROQUE & STEVE WAMHOFF, CORPORATE TAX AVOIDANCE IN THE FIRST YEAR OF THE TRUMP TAX LAW 11 (2019) (discussing different tax rates between companies within the same industry and the loopholes the tax code creates); Alexandra Thornton, 11 Ways the Wealthy and Corporations Will Game the New Tax Law, CTR. FOR AM. PROGRESS (July 25, 2018), https://www.americanprogress .org/article/11-ways-wealthy-corporations-will-game-new-tax-law/ [https:// perma.cc/5DH2-S4N4] (discussing tax gaming and its undermining of the fundamental principles of the U.S. tax system).

193 James Alm, Michael McKee & William Beck, Amazing Grace: Tax Amnesties and Compliance, 43 NAT’L TAX J. 23, 24 (1990) (“[G]overnment assurances . . . do little to lessen this effect of expectations on compliance.”); James Alm & Jay A. Soled, Tax Amnesties, Recidivism, and the Need for Reform, 74 TAX LAW. 659, 687 (2021) (discussing participation in tax amnesty programs only if accompanied by significant changes and hesitancy to admit to past evasion unless they believe tax enforcement will actually be increased following the amnesty); see also Arindam Das-Gupta & Dilip Mookherjee, Tax Amnesties as Asset-Laundering Devices, 12 J.L. ECON. & ORG. 408, 409 (1996) (discussing weak amnesty enforcement). A study found no evidence that Spain’s 1991 tax amnesty had a lasting impact on compliance, attributing observed revenue increases to structural reforms rather than the amnesty itself. Their analysis suggests that policy changes, enforcement, and economic factors play a more significant role in long-term tax compliance. Julio López-Laborda & Fernando Rodrigo, Tax Amnesties and Income Tax Compliance: The Case of Spain, 24 FISCAL STUDS. 73, 94 (2003); see also TAXPAYER ADVOC. SERV., AN ANALYSIS OF TAX SETTLEMENT PROGRAMS AS AMNESTIES 217 (2017) (discussing situations where an appropriately structured amnesty can build public confidence in the tax agency).

194 JANE G. GRAVELLE & DONALD J. MARPLES, CONG RSCH. SERV., IF12166, THE FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA) 1 (2022); OECD, Tax transparency and international co-operation, https://www.oecd.org/en/topics /policy-issues/tax-transparency-and-international-co-operation.html [https:// perma.cc/9SJY-7MWN]; Elisa Casi, Christoph Spengel & Barbara M.B. Stage, Cross-Border Tax Evasion After the Common Reporting Standard: Game Over?, 190 J. PUB. ECON., 2020, at 1, 6 (explaining models of tax information and internal tax transparency); Noam Noked, FATCA, CRS, and the Wrong Choice of Who to Regulate, 22 FLA. TAX REV. 77, 81 (2023) [hereinafter Wrong Choice of Who to Regulate]. See also OECD, Global Forum on Transparency and Exchange of Information for Tax Purposes, https://www.oecd.org/en/networks

/global-forum-tax-transparency.html [https://perma.cc/68AP-2ZS4], where a portal to access tax information used to be, but appears to be no longer available. But see Noam Noked, Should the United States Adopt CRS?, 118 MICH. L. REV. 118, 120 (2019) (explaining that the GAO report did not recommend adopting CRS in lieu of FATCA).

195 Wrong Choice of Who to Regulate, supra note 194, at 117. 196 López-Laborda & Rodrigo, supra note 193, at 74; Miguel A. Sanchez Villalba, On the Effects of Repeated Tax Amnesties, 4 J. ECON. & POL. ECON. 285, 286 (2017).

197 See Herman B. Leonard & Richard J. Zeckhauser, Amnesty, Enforcement, and Tax Policy, 1 TAX POL’Y & ECON. 55, 56 (1987) (“Current amnesties may have encouraged some citizens to believe that there will be future amnesties as well, reducing their incentives to keep current on their payments.”); Bruno Chiarini & Elisabetta Marzano, The Effectiveness of Amnesties in Contrasting Firms’ Tax Evasion 6 (Nov. 16, 2005) (unpublished manuscript) (explaining that amnesty may actually reduce wealth and cause a decrease in tax compliance in firms while still seeking amnesty). But see Villalba, supra note 196 (explaining the government is interested in granting amnesty because of, among other things, the promise of future compliance). Yet, Chiarini and Marzano have shown that this is not true and the government is playing a zero-sum game.

198 See VITO TANZI & HOWELL ZEE, TAX POLICY FOR DEVELOPING COUNTRIES 2 (International Monetary Fund 2001) (discussing reliability of statistics in many countries and how a lack of true reporting causes inefficient tax structures and policies); ERIC TODER & ALAN VIARD, MAJOR SURGERY NEEDED: A CALL FOR STRUCTURAL REFORM OF THE US CORPORATE INCOME TAX 1 (Urb. Inst. 2014) (discussing the “flawed” U.S. corporate income tax).

199 See Michael O’Dwyer, Small businesses dodge £4.4bn of UK tax each year, FIN. TIMES (Sep. 8, 2024), https://www.ft.com/content/37323ee9-16d9-4caf -9eda-120ed39adf89 [https://perma.cc/WYS5-BSJQ] (showing that small businesses dodge 4.4 billion pounds of United Kingdom tax each year); Cameron Micallef, ‘Dodgy behaviour’: ATO cracks down on $16bn cash tax avoidance, NEWS.COM.AU (Oct. 14, 2024), https://www.news.com.au/finance/economy/aus tralian-economy/dodgy-behaviour-ato-cracks-down-on-16-billion-cash-tax-avoid ance/news-story/5eccd43f200baedeae3b56b56fcf1584 [https://perma.cc/D2AH -PWAH]; U.S. GOV’T ACCOUNTABILITY OFF., GAO-23-106020, TAX ENFORCEMENT: IRS AUDIT PROCESS CAN BE STRENGTHENED TO ADDRESS A GROWING NUMBER OF LARGE, COMPLEX PARTNERSHIPS, GOV’T ACCOUNTABILITY OFF. 38 (2023); IRS, IRS Updates Tax Gap Projections for 2020, 2021; Projected Annual Rises to $688 Billion (Oct. 12, 2023), https://www.irs.gov/newsroom/irs-updates -tax-gap-projections-for-2020-2021-projected-annual-gap-rises-to-688-billion [https://perma.cc/2WZZ-MVV7]; IRS, IRS: The Tax Gap (Apr. 14, 2025), https:// www.irs.gov/statistics/irs-the-tax-gap [https://perma.cc/5DLE-M73J]; Chuck Marr, Focus on Tax Enforcement and the Tax Gap Welcome, But Not Enough, CTR. ON BUDGET & POL’Y PRIORITIES (Jan. 18, 2013), https://www.cbpp.org /blog/focus-on-tax-enforcement-and-the-tax-gap-welcome-but-not-enough [https://perma.cc/SB9D-98PE]. It should be emphasized though that lack of enforcement would certainly not increase compliance or the efficiency of the tax system. See Chye-Ching Huang, Depletion of IRS Enforcement Is Undermining the Tax Code: Testimony of Chye-Ching Huang Senior Director for Economic Policy, CBPP Before the House and Ways Committee, CTR. ON BUDGET & POL’Y PRIORITIES (Feb. 11, 2020), https://www.cbpp.org/depletion-of-irs-en forcement-is-undermining-the-tax-code [https://perma.cc/YGC2-YXBX] (discussing benefits gained from the added enforcement that could more than offset the cost of such enforcement).

200 See Sarin, supra note 1 (describing the U.S. tax system as having two sets of rules: one for “regular wage and salary taxpayers” and one for “wealthy taxpayers”); Huang, supra note 199.

201 Gomes et al., supra note 11. 202 Youssef Benzarti & Luisa Wallossek, Rising Income Tax Complexity, 28 fig. 5 (Nat’l Bureau Econ. Res., Working Paper No. 31944, 2023), https:// www.nber.org/papers/w31944 [https://perma.cc/BX3W-UL7J].

203 Gomes et al., supra note 11, at 284 (alluding to several studies that

have shown special installments increase tax avoidance).

204 Impact of Complexity in the Tax Code on Individual Taxpayers and Small Businesses: Hearing Before the Subcomm. on Oversight of the House Comm. on Ways and Means, 106th Cong. 83 (1999) (statement of C. Eugene Steurele, Senior Fellow, Urb. Inst., Nat’l Tax Ass’n).

205 See Theodore P. Seto, Four Principles of Optimal Tax System Design, 44 VA. TAX REV. 71, 84–86 (arguing that taxing the “maximand” minimizes behavioral distortion because the taxpayer cannot easily trade off the tax burden against their primary economic goal).

206 Id. at 85. 207 Id. at 86. 208 Id. at 81.

209 See WILLIAM G. GALE, RADICAL SIMPLIFICATION OF THE INCOME TAX 11 (Tax Policy Center 2024) (analogizing the complexity of tax to air pollution by pointing to its undesirable consequences of products or services that societies desire); Benzarti & Wallossek, supra note 202, at 27 fig. 7 (showing “a correlation between income and whether a taxpayer is willing to pay for simplifying taxes”).

210 Benzarti & Wallossek, supra note 202, at 13; GALE, supra note 209, at 7 tbl. 1 (using a table to clearly identify challenges with defining simplicity in relation to tax).

211 GALE, supra note 209, at 26 (“[R]ealistic versions of the flat tax and especially the sales tax would require tax rates much higher than advertised by their proponents.”).

212 Sharifur Rahman et al., An Exploration of Artificial Intelligence Techniques for Optimizing Tax Compliance, Fraud Detection, and Revenue Collection in Modern Tax Administrations, 7 INT’L J. BUS. INTELL. BIG DATA ANAL. 56, 58 (2024) (discussing the need for sophisticated tools to combat fraud); Mengdie Wang, AI Technologies in Modern Taxation: Applications, Challenges, and Strategic Directions, 1 INT’L J. FIN. & INV. 42, 42 (2024); Atika Nishat, AI-Powered Transfer Pricing: The Future of Tax Compliance and Regulatory Challenges, 1 PIONEER RSCH. J. COMPUTING SCI. 160, 161 (2024). But see Tushar Ranjan Barik, Designing and Implementing AI-Based Systems for Effective Corporate Tax Planning and Management 2 (unpublished manuscript), http://capdr.org/wp-content/uploads/2024/12/60.-Tushar-Ranjan-Barik.pdf [https://perma.cc/5EML-462Q] (noting that AI technology can also be used for tax planning and optimization and so should be considered when adopting such technology).

213 CONG. BUDGET OFF., Trends in the Internal Revenue Service’s Funding and Enforcement (July 2020), https://www.cbo.gov/publication/56467 [https://

perma.cc/6RGL-3M5P]; Sagit Leviner, A New Era of Tax Enforcement: From ‘Big Stick’ to Responsive Regulation, 42 U. MICH. J.L. REFORM 381, 387 (2009); Reuven S. Avi-Yonah & Oz Halabi, Real Time Audit—It is the Time to Act? 3 (L. & Econ. Working Papers No. 37, 2011) (explaining how current protocol allows for time to structure businesses to reduce tax liabilities).

214 See Zahra Gambarova & Dionysius Glycopantis, On the Analytics of Infinite Game Theory Problems 14 (Univ. London Working Paper No. 21/02, 2021).

215 See id. at 22. 216 Narotzki & Shanan, supra note 8, at 65. 217 See, e.g., id. at 55 (discussing more on the tax planning industry and

how the cycle continues to add nuance to an already complicated system).

218 See Alex Raskolnikov, Revealing Choices: Using Taxpayer Choice to

Target Tax Enforcement, 109 COL. L. REV. 689, 691 (2009).

219 See id. (discussing the difference in choice between a dual enforcement regime and a compliance regime that provides different features to the taxpayer).

220 Gabriel Zucman, Taxing Across Borders: Tracking Personal Wealth and Corporate Profits, 28 J. ECON. PERSPS. 121, 130–33 (2014); Carlos Contreras & Julio Angulo, Exit Costs and the Mobility of Wealthy Taxpayers 6 (June 14, 2022) (unpublished manuscript), https://ssrn.com/abstract=4136162 [https:// perma.cc/YHT9-REKH] (showing that the high mobility of the wealthy and highly skilled is an obstacle to the introduction of wealth taxation in a globalized world).

221 See Doron Narotzki, The True Economic Effects of Corporate Inversions, 151 TAX NOTES 1819, 1819 (2016); Zucman, supra note 220, at 121 (discussing globalization and the resulting profit shifting ease).

222 See Narotzki, supra note 221, at 1823. 223 Id.

224 Jakob Mökander & Ralph Schroeder, Artificial Intelligence, Rationalization, and the Limits of Control in the Public Sector: The Case of Tax Policy Optimization, 42 SOC. SCI. COMPUT. REV. 1359, 1360 (2024).

225 Mökander & Schroeder, supra note 224 (describing AI’s ability to diagnose specific problem formulations); Nishat, supra note 212, at 160 (exploring the full scope of AI’s potential in transfer pricing and its benefits in tax compliance); Barik, supra note 212; Amardeep Bajpai, Evaluating the Impact of Artificial Intelligence on Enhancing Tax Compliance and Financial Regulation, 5 INT’L J. MULTIDISCIPLINARY RSCH. & TECH 1, 2 (2024); see also Marco Battaglini et al., Refining Public Policies with Machine Learning: The Case of Tax Auditing, 249 J. ECONOMETRICS, May 2025, at 4 (proposing a machine learning algorithm to create predictions for all tax returns to then be used to guide the audit selection process); JANET HOLTZBLATT & ALEX ENGLER, TAX POL’Y CTR., MACHINE LEARNING AND TAX ENFORCEMENT 8 (2022); Qinghua Zheng et al., A Survey of Tax Risk Detection Using Data Mining Techniques, 34 ENG’G 43, 46 (2024) (introducing the tree-based model as one of the bestknown machine learning algorithms).

226 See Mengdie Wang, AI Technologies in Modern Taxation: Applications, Challenges, and Strategic Directions, 1 INT’L J. FIN. & INV. 42, 44 (2024) (finding improvements to the administrative, enhanced audit efficiency, reduced processing times, and more accurate risk assessments).

227 Sharifur Rahman et al., An Exploration of Artificial Intelligence Techniques for Optimizing Tax Compliance, Fraud Detection, and Revenue Collection in Modern Tax Administrations, 7 INT’L J. BUS. INTEL. & BIG DATA ANAL. 56, 58 (2024). But see Mökander & Schroeder, supra note 224 (discussing ethical risks such as discriminatory outcomes).

228 See Aakriti Aryal, Embracing Artificial Intelligence in Accounting

(Mar. 29, 2022) (Honors Project, Caldwell University).

229 See Simon Stern, Introduction: Artificial Intelligence, Technology, and the Law, 68 U. TORONTO L.J. SUPP. 1, 1 (2018); Lauren Loricchio & Chandra Wallace, Transparency, Oversight Urged for IRS Artificial Intelligence, TAX NOTES (Oct. 22, 2024), https://www.taxnotes.com/featured-news/transparency -oversight-urged-irs-artificial-intelligence/2024/10/21/7m6nv [https://perma.cc /A7G3-KDEM].

230 See KEN HUANG, ET AL., AI Regulations, in GENERATIVE AI SECURITY: THEORIES AND PRACTICES 61, 76–77 (K. Huang, et al. eds., 2024); Sean Much, Michael Borrelli & Charles Kerrigan, The EU AI Act: A Comprehensive Regulatory Framework for Ethical AI Development 2 (Aug. 23, 2023) (unpublished manuscript) (describing the increasingly apparent need for a robust framework to ensure AI technologies align with ethical principles).

231 Mökander & Schroeder, supra note 224, at 1369; Loricchio & Wallace,

supra note 229.

232 Mökander & Schroeder, supra note 224, at 1367. For an explanation of a “Weberian bureaucracy,” see FRITZ SAGER & CHRISTIAN ROSSER, WEBERIAN BUREAUCRACY 2–3 (2021).

233 Mökander & Schroeder, supra note 224, at 1361. 234 Id. at 1362–64. 235 See Mökander & Schroeder, supra note 224, at 1363.

236 Id. at 1364–65. 237 See id. at 1370. 238 See Loricchio & Wallace, supra note 229. 239 Id.; Lauren Loricchio, Black Taxpayers Much More Likely to Be Audited, Report Finds, TAX NOTES (Feb. 1, 2023), https://www.taxnotes.com/featured -news/black-taxpayers-much-more-likely-be-audited-report-finds/2023/01/31 /7fxd4 [https://perma.cc/S9ZX-3LGH]. For example, the Dutch Tax and Customs Administration’s use of algorithms flagged “foreign-sounding names” and “dual nationality” as one of the main risk factors in determining potential fraud, leading to thousands of families being wrongfully accused, with severe financial and social consequences. The Dutch Childcare Benefit Scandal, Institutional Racism and Algorithms, at 1, COM (2022) O-000028/2022 final (June 28, 2022). Also, for the use of “dirty data” and its impact, see Rashida Richardson, Jason M. Schultz & Kate Crawford, Dirty Data, Bad Predictions: How Civil Rights Violations Impact Police Data, Predictive Policing Systems, and Justice, 94 N.Y.U. L. REV. ONLINE 15, 46–48 (2019) (finding that failure to reform dirty data elevates the risks of skewing predictive policing systems and creating lasting consequences for the criminal justice system and society as a whole).

240 Tri Eka Saputra & Rahmat Eko Prabowo, Comparative Analysis of Public Perceptions of Tax Justice and Public Responses to Changes in the Tax System, 3 ADVANCES IN TAX’N RSCH. 15, 17–18 (2025).

241 See Mökander & Schroeder, supra note 224, at 1371. 242 See id. 243 See Clarence Heer, Taxation as an Instrument of Social Control, 42 AM. J. SOC. 484, 484–85 (1937); Sinéad Ruane, Micheál L. Collins & Adrian Sinfield, The Centrality of Taxation to Social Policy, 19 SOC. POL’Y & SOC’Y 437, 438–39 (2020); Mark Lee, No Taxation Without Sociological Imagination, THE SOC’Y PAGES (Apr. 15, 2019), https://thesocietypages.org/trot/2019/04/15/no-taxation -without-sociological-imagination/ [https://perma.cc/QG4E-9MQZ]; Knowledge at Wharton Podcast, How the Tax Structure Can Be Tweaked for Social Good, UNIV. PA. (Apr. 13, 2018), https://knowledge.wharton.upenn.edu/podcast/knowl edge-at-wharton-podcast/taxation-social-good/ [https://perma.cc/YZQ3-WCST]; Sebastian James, Taxation as a Tool for Social Equality, ECON. TIMES (Dec. 8, 2011), https://economictimes.indiatimes.com/news/eco nomy/policy/taxation-as -a-tool-for-social-equality/articleshow/11027177.cms?from=mdr [https://perma .cc/Z9EF-F7FF]; WORLD BANK GRP., Why Paying Taxes Matters, SUBNAT’L STUD., https://subnational.doingbusiness.org/en/data/exploretopics/paying-taxes/why -matters [https://perma.cc/2LRR-4MER].

244 See Mökander & Schroeder, supra note 224, at 1368; Brian Connor, Strengthening Democracy Through Tax Policy, REGUL. REV. (May 7, 2024), https://www.theregreview.org/2024/05/07/connor-strengthening-democracy -through-tax-policy/ [https://perma.cc/GSJ4-8ZXC].

245 See Giulia G. Cusenza, Litigating Governmental Use of AI, 21 OHIO ST.

TECH. L.J. 1, 36–37 (2024); Mökander & Schroeder, supra note 224, at 1368.

246 Sotiris Spyrou, AI in Welfare Services: Risks to Vulnerable Populations, VERITYAI BLOG (July 2, 2025), https://verityai.co/blog/ai-welfare-services-risks -vulnerable-populations [https://perma.cc/NYZ2-4XBC]; see also Emmanuel A. M. Sam, The Indispensable Role of Law in Governing AI: Why Legal Ethics and Regulation Are Essential for Responsible AI Development, 12 OPEN ACCESS LIBR. J., Nov. 28, 2025, at 3.

247 Kevin S. Markle, A Comparison of the Tax-Motivated Income Shifting of Multinationals in Territorial and Worldwide Countries 17–18 (Oxford Univ. Ctr. for Bus. Tax’n, Working Paper No. 12/06, 2010); David Harris et al., Income Shifting in U.S. Multinational Corporations, in STUDIES IN INTERNATIONAL TAXATION 277, 290 (Alberto Giovannini, R. Glenn Hubbard & Joel Slemrod eds., Univ. of Chi. Press 1993); IMF Staff, International Corporate Tax Reform, Policy Paper No. 2023/001, at 24 (2023).

248 Shafik Hebous, Alexander Klemm & Saila Stausholm, Revenue Implications of Destination-Based Cash-Flow Taxation 7 (IMF Working Paper No. 19/7, 2019); Shafik Hebous & Alexander Klemm, Destination-Based Taxation: A Promising but Risky Destination, in CORPORATE INCOME TAXES UNDER PRESSURE 265, 268 (Ruud A. de Mooij et al. eds., IMF 2021); U.S. DEP’T OF TREASY., OFF. OF TAX ANAL., WORKING PAPER NO. 116, WHAT WOULD A CASH FLOW TAX LOOK LIKE FOR U.S. COMPANIES? LESSONS FROM A HISTORICAL 5–6 (2017); Felix Hugger et al., How the Global Minimum Tax Changes the Taxation of Multinational Companies, VOXEU (June 22, 2024), https://cepr.org /voxeu/columns/how-global-minimum-tax-changes-taxation-multinational-com panies [https://perma.cc/S549-4SDD].

249 OECD, TAX CHALLENGES ARISING FROM THE DIGITALISATION OF THE ECONOMY—GLOBAL ANTI-BASE EROSION MODEL RULES (PILLAR TWO) 7 (2021); see supra Section II.A.

250 Tina Duly, BEPS Pillar 2 101: Exploring the OECD’s Global Minimum Tax Impact on Tax Incentives, WOLTERS KLUWER: EXPERT INSIGHTS (July 10, 2024), https://www.wolterskluwer.com/en/expert-insights/beps-pillar-2-101 [https://perma.cc/S6MP-9YXH]; see supra Section II.A.

251 TAXPAYER ADVOC. SERV., supra note 193, at 213–14. 252 See generally Wilson Prichard et al., Innovations in Tax Compliance: Conceptual Framework (World Bank Pol’y Rsch. Working Paper No. 9032, 2019) (presenting a conceptual framework to develop a more effective approach to tax reform and compliance).

253 Eric Posner, Law and Social Norms: The Case of Tax Compliance, 86

VA. L. REV. 1781, 1796 (2000); KORNHAUSER, supra note 13, at 21.

254 Bruno Chiarini & Elisabetta Marzano, A Strategic Approach for the

Crime of Tax Evasion, 26 J. FIN. CRIME 477, 484–85 (2019).

IV.(cid:3)TECH-DRIVEN TAX REFORM

255 See id. at 485 (“We show that a greater severity of the penalty and a higher certainty of punishment . . . lead necessarily to a unique Bayesian equilibrium without evasion.”); TAXPAYER ADVOC. SERV., supra note 193, at 213–14. 256 See Wojciech Kopczuk, Tax Simplification and Tax Compliance: An Economic Perspective, in BRIDGING THE TAX GAP: ADDRESSING THE CRISIS IN FEDERAL TAX ADMINISTRATION 111, 119–22, 124–25 (Max B. Sawicky ed., 2005).

257 Blaufus et al., supra note 38, at 192–93.

258 Avi-Yonah & Halabi, supra note 213, at 3–4; Sebastian Bustos et al., The Race Between Tax Enforcement and Tax Planning: Evidence from a Natural Experiment in Chile 14 (CESifo Working Paper No. 10462, 2023); OECD, NEUTRALISING THE EFFECTS OF HYBRID MISMATCH ARRANGEMENTS 94–95 (2014). 259 See Evgeny Guglyuvatyy, Balancing Innovation and Integrity: AI in Tax Administration and Taxpayer Rights, 12 HUMAN. & SOC. SCI. COMMC’NS, Nov. 24, 2025, at 2.

260 See Mark Price et al., Digital Revenue Agencies in the AI Era, DELOITTE INSIGHTS (Apr. 10, 2025), https://www.deloitte.com/us/en/insights/industry/pub lic-sector/digital-revenue-agencies-in-artificial-intelligence-era.html [https:// perma.cc/KC94-YCAR].

261 THOMAS REUTERS TAX & ACCT. BLOG, The Power of Embedded ERP Solutions in Tax Compliance (Jan. 6, 2025), https://tax.thomsonreuters.com/blog /revolutionizing-tax-compliance-the-power-of-embedded-solutions-in-erp-sys tems/ [https://perma.cc/L3FU-HW8L].

262 Laura Clayton McDonnell, Real-Time Tax Reporting Is Coming to the U.S.: Are Businesses Ready?, FORBES (Oct. 24, 2023), https://www.forbes.com /sites/lauraclaytonmcdonnell/2023/10/24/real-time-tax-reporting-is-coming-to -the-us-are-businesses-ready/ [https://perma.cc/3MVC-7GZT]; Zbigniew Deptula, Real Time Reporting—Challenge or Opportunity for Managing Business More Efficiently, EY (Mar. 21, 2024), https://www.ey.com/en_pl/insights/tax/real-time -reporting-challenge-or-opportunity-for-managing-business-more-efficiently [https://perma.cc/M5M2-5LL9]; CLIFTONLARSONALLEN, IRS Oversight Board Weighs Merits of a Real-Time Tax System (May 15, 2013), https://www.clacon nect.com/en/resources/articles/irs-oversight-board-weighs-merits-of-a-realtime -tax-system [https://perma.cc/53WJ-G47K]; Charles Delmotte, Toward a Blockchain Driven Tax System, 43 VA TAX REV. 36, 43–44 (2022); Avi-Yonah & Halabi, supra note 213, at 3–4; Richard Thompson Ainsworth & Boryana Madzharova, Real-Time Collection of the Value-Added Tax: Some Business and Legal Implications 8–9 (B.U. Sch. of L., Working Paper No. 12-51, 2012).

263 Hebous, Klemm & Stausholm, supra note 248, at 9. 264 Avi-Yonah & Halabi, supra note 213, at 1. 265 Ubesie Madubuko Cyril et al., Digital Tools, Better Taxes: How AI and Blockchain Are Shaping Modern Tax Systems, 9 WORLD J. INNOVATION & MOD. TECH. 156, 157–58 (2025). 266 See supra Section II.A. 267 Carrie Brandon Elliott, Game Theory and Tax Systems, TAX NOTES (Sep. 10, 2019), https://www.taxnotes.com/opinions/game-theory-and-tax-systems /2019/09/10/29xpx [https://perma.cc/2JNU-MHUE]; see supra Sections I.B–C.

268 Michael R. Bartish, Steer Clear of Criminal Tax Charges: Understanding the Difference Between Tax Avoidance and Tax Evasion, SBBL L. BLOG (May 23, 2024), https://sbbllaw.com/blog/the-difference-between-tax-avoidance -and-tax-evasion/ [https://perma.cc/TL93-44XE]; see supra, Section II.A.

269 ECONOMETRICS LAB., UNIV. OF CAL. BERKLEY, BASIC WELFARE ECONOMIC

AND OPTIMAL TAX THEORY 8–11; supra, Section II.D.

270 Nir Yaacobi, Here’s Why Destination-Based Corporate Tax Rules Are Fairer, WORLD ECON. FORUM (July 20, 2022), https://www.weforum.org/stories /2022/07/destination-based-corporate-tax-oecd/ [https://perma.cc/W86K-LYYF]. 271 See Avi-Yonah & Halabi, supra note 213, at 1; DUTCH TAX AUTH., A FIRST STEP TO REAL-TIME TAXATION 57 (2024), https://www.government.nl/binaries /government/documenten/reports/2024/06/30/a-first-step-to-real-time-taxation /A+first+step+to+real-time+taxation.pdf [https://perma.cc/YYF9-UD99].

272 Bartish, supra note 268. 273 Avi-Yonah & Habali, supra note 213. 274 See DUTCH TAX AUTH., supra note 271, at 25. 275 IRS, Compliance Assurance Process (Aug. 22, 2025), https://www.irs.gov /businesses/corporations/compliance-assurance-process [https://perma.cc /FK6N-DEPN]; see Paul J. Beck & Petro Lisowsky, Tax Uncertainty and Voluntary Real-Time Tax Audits, 89 ACC’G REV. 867, 870 (2014).

276 See Nadia Novik et al., Data Insights on Tax Digitalization: Why Direct E-Payments Matter, WORLD BANK BLOGS (Mar. 19, 2025), https://blogs.world bank.org/en/opendata/data-insights-on-tax-digitalization--why-direct-e-payments -matte [https://perma.cc/7MD6-CYYJ].

277 See, e.g., DUTCH TAX AUTH., supra note 271, at 41. 278 Id. at 33. 279 Id. at 26.

280 GAO, Artificial Intelligence May Help IRS Close the Tax Gap (June 6, 2024), https://www.gao.gov/blog/artificial-intelligence-may-help-irs-close-tax -gap [https://perma.cc/73EU-VGC2].

281 See Orly Sulami Mazur, Can Blockchain Revolutionize Tax Administra-

tion?, 127 PENN ST. L. REV. 115, 154 (2022).

282 See OECD, TAX ADMINISTRATION 3.0 AND CONNECTING WITH NATURAL

SYSTEMS: INITIAL FINDINGS 11–12 (2022).

283 See Richard Thompson Ainsworth, Biometrics, Certified Software Solutions, and the Japanese Consumption Tax: A Proposal for the Tax Commission 30–31 (B.U. Sch. of L., Working Paper No. 06-45, 2006), https://ssrn.com/ab stract=947485 [https://perma.cc/AP5H-HXTK]. In the Brazilian system, sellers are required to generate an electronic invoice (e-invoice) and transmit a digitally signed file containing all relevant fiscal details of the transaction to the buyer. This file must also be submitted electronically to the tax authority of the recipient’s state, which pre-validates the information before confirming receipt. The validated file is essential for the physical transport of goods, serving as an official record. Additionally, the data is sent to the Federal Revenue Service (Receita Federal), which acts as a centralized repository for all issued e-invoices. The Brazilian system was implemented in multiple phases, with the initial phase requiring the use of an auxiliary document (DANFE) during the transport of goods. This document included a unique identifier that allowed tax authorities to retrieve the e-invoice online and a barcode to facilitate the automated processing of transaction data. While businesses receiving goods could use the DANFE for bookkeeping purposes, the accuracy and legitimacy of the recorded data ultimately depended on the e-invoice stored in

the tax authorities’ database. EDICOM, How Does Electronic Invoicing Work in Brazil? (June 6, 2025), https://edicomgroup.com/blog/electronic-invoicing-brazil [https://perma.cc/VHJ6-ZX6H]; SISTEMA PÚBLICO DE ESCRITURAÇÃO DIGITAL, Apresentação, http://sped.rfb.gov.br/pagina/show/964 [https://perma.cc/U8R3 -CFQM]; Andrea Novais, All About SPED, THE BRAZ. BUS. (Feb. 1, 2013), https://thebrazilbusiness.com/article/all-about-sped [https://perma.cc/5CH8-4UZE]. 284 See THE GOODS & SERVICES TAX COUNCIL, About Us, https://gstcouncil .gov.in/about-us [https://perma.cc/N5FX-928T]; WBG, IMPLEMENTATION OF INDIA’S GOODS AND SERVICES TAX: DESIGN AND INTERNATIONAL COMPARISON 2 (2018).

285 E-ESTONIA, Ease of Doing Business, https://e-estonia.com/solutions/ease _of_doing_business/e-tax/ [https://perma.cc/EV8T-S9N4]; see INV. IN ESTONIA, Estonia’s Super-Simple Tax System Gives Growing Companies an Edge (Feb. 2022), https://investinestonia.com/the-economist-estonias-super-simple-tax-sys tem-gives-growing-companies-an-edge/ [https://perma.cc/V589-XB7Y].

286 See DUTCH TAX AUTH., supra note 271, at 25. 287 See Daniel I. Halperin & Alvin C. Warren, Understanding Income Tax Deferral, 67 TAX L. REV. 317, 334 (2014); PETER J. BRADY, INV. CO. INST., THE TAX BENEFITS AND REVENUE COSTS OF TAX DEFERRAL 28 (2006); George Cooper, The Taming of the Shrewd: Identifying and Controlling Income Tax Avoidance, 85 COLUM. L. REV. 657, 668–89 (1985).

288 See Ainsworth, supra note 283, at 25.

289 See DUTCH TAX AUTH., supra note 271, at 32. 290 See id. at 25. 291 See id. at 69. 292 See id. at 25. 293 See id. at 36–47; IRS, SAFEGUARDING TAXPAYER DATA 13 (2024) [here-

inafter SAFEGUARDING TAXPAYER DATA].

294 See SAFEGUARDING TAXPAYER DATA, supra note 293; U.S. GOV’T ACCOUNTABILITY OFF., GAO-23-105395, SECURITY OF TAXPAYER INFORMATION: IRS NEEDS TO ADDRESS CRITICAL SAFEGUARD WEAKNESSES (2023); GOV’T ACCOUNTABILITY OFF., Taxpayer Information Keeps Ending Up in the Wrong Hands. What Can IRS Do to Better Protect It? (Sep. 26, 2023), https://www .gao.gov/blog/taxpayer-information-keeps-ending-wrong-hands.-what-can-irs -do-better-protect-it [https://perma.cc/F6K2-MW7R].

295 See, e.g., INST. OF CHARTERED ACCT. OF ENG. AND WALES [ICAEW] INSIGHTS, Real-time tax reporting: how soon and how safe?, INSIGHTS (Mar. 3, 2023), https://www.icaew.com/insights/insights-specials/the-future-of-tax-and -public-spending/real-time-tax-reporting-how-soon-and-how-safe [https://perma .cc/T97Z-FZHN].

296 Id. 297 See MANABU NOSE & ANDUALEM MENGISTU, EXPLORING THE ADOPTION OF SELECTED DIGITAL TECHNOLOGIES IN TAX ADMINISTRATION: A CROSSCOUNTRY PERSPECTIVE 8–9 (IMF 2023).

298 See id. 299 See Reuven S. Avi-Yonah, The Case for a Destination-Based Corporate Tax, 41 INT’L TAX J. 11, 11 (2015); Chidozie Chukwudumogu, Destination Taxation of Corporate Income and the Emerging Implications, 8 J. TAX ADMIN. 45, 47–48 (2023); Reuven S. Avi-Yonah, Destination Based Corporate Tax: An Alternative Approach 3 (Univ. of Mich. Pub. L. Rsch., Working Paper, Paper No. 529, 2017); Wolfgang Schön, Some Thoughts on the Relationship between the Destination-Based Cash Flow Tax and VAT 2 (Max Planck Inst. for Tax L. and Pub. Fin. Working Paper No. 2023-07, 2023); Reuven S. Avi-Yonah & Kimberly A. Clausing, Problems with Destination-Based Corporate Taxes and the Ryan Blueprint, 8 COLUMB. J. OF TAX L. 229, 255 (2017); William B. Barker, A Common Sense Corporate Tax: The Case for a Destination-Based, Cash Flow Tax on Corporations, 61 CATH. UNIV. L. REV. 955, 971 (2012); Kyle Pomerleau, How a Destination-Based Tax System Reduces Tax Avoidance, TAX FOUND. (Apr. 4, 2017), https://taxfoundation.org/blog/destination-based-tax-system-re duces-tax-avoidance/ [https://perma.cc/YYD9-WG37].

300 See Manon Francois, Profit Shifting and Unilateral Adoption of Destination-Based Taxes 2–3 (June 15, 2023) (unpublished manuscript), https:// ssrn.com/abstract=4479908 [https://perma.cc/JU38-ES8C]; Avi-Yonah & Clausing, supra note 299; Kimberly A. Clausing, The Effect of Profit Shifting on the Corporate Tax Base in the United States and Beyond, 69 NAT’L TAX J. 905, 929 (2016); Pomerleau, supra note 299.

301 See Francois, supra note 300; Avi-Yonah & Clausing, supra note 299; Clausing, supra note 300; Barker, supra note 299, at 1010; Pomerleau, supra note 299.

302 Seto, supra note 34, at 91–95. 303 Id. at 93–95. 304 See id. at 91–95. 305 Id. 306 See Gayathri B. & Vishwa Priya V., Improving the Security and Speed of GST Tracking by Use of Artificial Intelligence’s Blockchain Real Time Technology, 12 INT’L J. INTELLIGENT SYS. & APPLICATIONS ENG’G 294, 296 (2024);

Tom Wheelwright, How A.I. and Blockchain Are Changing the Tax Industry, INC. MASTERS (Sep. 14, 2023), https://www.inc.com/inc-masters/how-ai-and-block chain-are-changing-th.html [https://perma.cc/9AB5-E2CY].

307 See Study Requested by the Committee on Financial Crimes, Tax Evasion and Tax Avoidance on the Impact of Digitalisation on International Tax Matters 82–83, EUR. PALR. DOC. PE 626.078 (2019) [hereinafter Impact of Digitalisation].

308 Priya, supra note 306, at 295; Justina Eweala Abubakar et al., Exploring the Impact of AI-Driven and Blockchain-Enabled Tax Filing Systems on SMEs in the Era of Technological Innovation: A Review of Benefits, Challenges, and Adoption Barriers, 23 WORLD J. ADVANCED RSCH. & REV. 1867, 1874 (2024); Impact of Digitalisation, supra note 307.

309 See Abubakar et al., supra note 308, at 1875. 310 For a general overview of some of the outstanding tax issues and harmful tax practices regarding European countries, see EUR. NETWORK ON DEBT AND DEV., supra note 186, at 12–29.

311 See Justina Eweala Abubakar et al., supra note 308, at 1873. 312 See Sebastian Beer et al., Hidden Treasures: The Impact of Automatic Exchange of Information on Cross-Border Tax Evasion 7–8 (IMF Working Paper 19/286, 2019).

313 OECD, Reallocation of Taxing Rights to Market, https://www.oecd.org /en/topics/sub-issues/reallocation-of-taxing-rights-to-market-jurisdictions.html [https://perma.cc/Y5TV-W7AG].

314 See Beer et al., supra note 312. 315 See Study Requested by the Economic and Monetary Affairs Subcom-

mittee on Tax Matters 27, EUR. PARL. DOC. PE 695.458 (2021).

316 See NOSE & MENGISTU, supra note 297. 317 Stephanie Soong & Andrew Velarde, Trump Win Casts Shadow Over OECD Tax Reforms, TAX NOTES (Nov. 12, 2024), https://www.taxnotes.com /featured-news/trump-win-casts-shadow-over-oecd-global-tax-reforms/2024/11 /08/7n4sx [https://perma.cc/YQ64-QK6Z]; Christopher Ahn, Taxing the Digital Giants: What the OECD Global Tax Deal Means for the U.S., FORDHAM J. CORP. & FIN. L. (Oct. 8, 2024), https://news.law.fordham.edu/jcfl/2024/10/08 /taxing-the-digital-giants-what-the-oecd-global-tax-deal-means-for-the-u-s/ [https://perma.cc/5T9X-NT6X]; BAKER MCKENZIE, United States: House Ways

CONCLUSION—THE GAME WILL NEVER END UNLESS WE CHANGE THE RULES

and Means Committee Holds Hearing on the Organization for Economic Cooperation and Development Pillar One (Mar. 19, 2024), https://insightplus .bakermckenzie.com/bm/tax/united-states-house-ways-and-means-committee -holds-hearing-on-the-organization-for-economic-co-operation-and-development -pillar-one [https://perma.cc/DB4E-ZRXX].

318 See RJS LAW, The OECD’s Two-Pillar Solution: Progress and Challenges in 2025, https://irssolution.com/blog/the-oecds-two-pillar-solution-progress-and -challenges-in-2025-oecd/ [https://perma.cc/PY65-V8DR].

319 See id. 320 See supra Section II.C. 321 See id.

322 See Soong & Velarde, supra note 317; Ahn, supra note 317; BAKER

MCKENZIE, supra note 317.

323 See BAKER MCKENZIE, supra note 317. 324 Winner Winner Chicken Dinner, DICTIONARY.COM, https://www.diction ary.com/e/slang/winner-winner-chicken-dinner/ [https://perma.cc/YVU5-JV67] (Sep. 4, 2018).