Imagine walking down the street, minding your own business, when you suddenly see a “wanted” poster with your face on it. Why are you wanted? What crime have you supposedly committed? Perhaps you had some tax trouble with the Internal Revenue Service, but that wouldn’t land you on a poster, would it?
Believe it or not, this is one of many tactics being tested by the British tax authority. Much like in America, the UK wants to increase tax compliance. But what is the most effective strategy to get people to pay up?
This question has been at the heart of many studies in recent years. Social scientists and economists have tried to analyze human behavior and motivation as it relates to tax compliance, evasion and fraud. The results of some of these studies were discussed in a recent New York Times article.
According to the Times, some people might be persuaded to be honest with a simple reminder such as “don’t cheat.” The message is more effective, however, if it is stated as a personalized, authoritative warning such as “don’t be a cheater.” As you might expect, neither of those two strategies is as effective as what the IRS already uses: The threat of an audit (or worse).
Of course, the average person’s behavior is at least partially influenced by a calculation of risk vs. reward. In more concrete terms, this means that people are more likely to cheat on their taxes if the risk of getting caught seems low.
Conversely, we are more likely to be honest on our taxes if the chances of an audit (or other scrutiny) seem high. Studies have shown that a simple alert from tax officials could improve compliance, because it serves as a subtle reminder that the IRS knows about you and may be paying close attention to your return.
Unfortunately, even scrupulous honesty is no guarantee that you will be safe from an audit. If and when that time comes, please make sure you have an experienced tax law attorney by your side.