Overstating Of Assets Costing US Billions In Tax Revenues, Say Academics

by Leroy Baker, Tax-News.com, New York

26 January 2005

The overstating of prices paid for stocks, businesses and real estate by investors and entrepreneurs is costing the US taxpayer some $29 billion annually in lost revenues, according to two law professors.

Writing for the journal Tax Notes, Professor Joseph M. Dodge of Florida State University Law School and Professor Jay Soled, a lawyer who teaches at the Rutgers University business school believe the problem is now of “crisis proportions” and is “plaguing” the tax system; yet it is an issue which has been largely unpublicised, the New York Times reported.

According to the academics, there is “virtually unlimited" potential for abusive reporting, most notably with stock purchases and real estate transactions, which could be much reduced if Congress amended capital gains rules.

The problem stems from the Internal Revenue Service’s lack of effective means to determine price, or basis, for an asset when it is sold on, the professors wrote.

Professor Soled estimated that the overstating of assets could cost the US government $300 billion in lost revenues over the coming decade.

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