Playing the Audit Lottery: The Role of Penalties in the U.S. Tax Law in the Aftermath of Long Term Capital Holdings v. United States

TABLE OF CONTENTS I. Introdu ction .................................................................................................. 383 II. The Econom ics of Penalties ........................................................................ 388 A . Introduction ..................................................................................... 388 B. The Utilitarian-Economic Theory .................................................... 390 C . Sanctions as Prices ........................................................................... 390 1. The Strict A pproach .................................................................. 392 2. The Interm ediate Theory ........................................................... 392 3. The Moral/Ethical Approach .................................................... 393 D . C onclusions ..................................................................................... 394 Il. Tax Penalty and D eterrence ....................................................................... 394 A . Cost-B enefit Equation ..................................................................... 394 B. The Tax Department as a Profit-Maximization Unit ....................... 396 C. Avoiding Overdeterrence ................................................................. 397 IV . Tax Accuracy-Related Penalties ................................................................ 398 A . O verview ......................................................................................... 398