Legislators out to catch artful tax dodgers.

Byline: David Steves The Register-Guard

SALEM - As an employment-benefits lawyer, Greg Macpherson often finds himself advising corporate executives to resist pitchmen with schemes to hide their money from the tax collector.

And as a legislator, Macpherson is trying to give those clients even more reason to heed his advice - by proposing laws cracking down on abusive tax shelters and the tax cheats who use them.

The Lake Oswego Democrat is among several lawmakers who are zeroing in on tax scofflaws, but not just because it could mean more money for cash-strapped state services.

"It would be helpful to us in financing programs, but it's really about the fairness of the tax system," said Macpherson.

Or, as Sen. Gary George, R- Newberg, put it, "We don't want a system where the Dudley Do-Rights pay their taxes and the Dudley Do-Wrongs don't."

If lawmakers such as Macpherson and George have their way, those businesses and well-to-do individuals who have been short-changing the tax collector through abusive tax shelters and other dodges could find themselves paying stiffer fines if they get caught. There may be more state auditing effort put into catching them. And once nabbed, the penalty paid may exceed the monetary sort. Oregon tax cheats might even be inducted into an Oregon "Hall of Shame" for tax evaders - for all to see on the Web.

However, some experts said a state drive to clamp down would be hampered by the federal government's reduced use of audits to pursue cheats. Typically, the state gets tips from federal Internal Revenue Service auditors about whom to pursue for Oregon tax evasion. But guided by conservatives in Congress, the IRS has cut its auditing efforts significantly in the past decade.

Other states' leads

Oregon lawmakers acknowledge that they're mainly picking up on ideas that already have been put to use in other states. More than a dozen states are posting the names of businesses and individuals with overdue taxes on sites such as Louisiana's "CyberShame" and South Carolina's "Debtor's Corner."

And several states along with the IRS have devised legal definitions of the complex transactions known as "abusive tax shelters," which Oregon could cut-and-paste into legislation being considered this session.

Legislative Revenue Officer Paul Warner said these complex transactions are different from legal tax shelters in an important way: They have no economic value and exist solely for the purpose of tax avoidance - primarily by wealthy individuals and businesses.

The state whose success in nailing tax cheats has garnered the closest attention in Salem so far is California. California began on Tuesday a two-month tax-amnesty period, during which Californians have a one-time chance to pay their past taxes without financial penalties or the threat of criminal prosecution.

Last year, the state offered a smaller-scale version, just for those who used illegal offshore or abusive tax shelters.

Those who pass up the opportunity will face tougher penalties once the grace period ends, including a doubling of some financial penalties. The state estimates the amnesty period will bring in $670 million. California officials figure about $6.5 billion in taxes are unpaid or underpaid, including $4 billion based on underreported income or overused deductions.

Sen. Ryan Deckert, a Beaverton Democrat who chairs the Senate Revenue Committee, has spent the past week looking at ways to improve Oregon's tax collections, and is working on legislation modeled on California's success.

"We're going to borrow heavily from Gov. (Arnold) Schwarzenegger, who's worked this rather effectively," Deckert said.

Oregon's pool of owed-but-uncollected taxes may be a fraction of California's, but they still could help fill some of the state's projected $1 billion revenue shortfall, proponents say.

Oregon is one of only eight states that hasn't offered a tax-amnesty program since the Federation of Tax Administrators began tracking the issue in 1982.

In testimony to Deckert's committee, state revenue officials have estimated that as much as 9 percent of the income taxes owed the state go uncollected.

State officials haven't calculated that gap as a dollar figure, but a study by retired IRS auditor Del Diebig estimated that Oregon fails to collect as much as $1 billion in taxes that it is owed each year. The state collects about $5 billion in income taxes annually. Diebig said the uncollected amount is probably growing, and he added that the federal government is failing to collect about $300 billion it is owedcq.

Federal scrutiny diminishing 

He attributed the problem in part to the trend in the IRS away from auditing and enforcement in the past decade. Without such scrutiny by the feds, Oregon tax auditors have far fewer leads to follow in going after tax cheats at the state level.

"When laws aren't enforced fairly and predictably, social norms create an environment that encourages cheating," said Diebig, who produced the study for a group called Tax Fairness Oregon based on research by the IRS and an organization of tax administrators from all 50 states called the Multistate Tax Commission.

Tax Fairness Oregon chairwoman Jody Wiser said the tax gap could widen, given the growing number of Oregonians whose income reaches them through means other than a paycheck. She cited the income received through investment portfolios, rental property ownership and contract employ- ment.

What unites people with these types of income is - and invites tax evasion - is that it isn't reported separately to the government through a W-2 or comparable form.

Wiser herself has over the years received much of her income from many of these non-wage sources, yet her taxes haven't been audited since 1969.

"Don't we need a cop on the corner?" she asked, suggesting that more scrutiny by tax auditors would help crack down on cheats and discourage more individuals and businesses from joining their ranks.

It's an idea that may find favor among many lawmakers, but one legislator critical to the debate has his doubts.

Rep. Tom Butler, R-Ontario, is chairman of the House Revenue Committee, which almost certainly will take up any tax-avoidance legislation in that chamber. Butler said he is reluctant to expand the state Department of Revenue's enforcement role to an extent that it effectively ends Oregon's "voluntary compliance" approach to taxes.

"I am very concerned about Oregon with its auditors becoming a group of jackbooted thugs coming down and creating a system weighted so heavily toward compliance and auditing that it's no longer a voluntary compliance system," said Butler, a certified public accountant who's done tax returns for individuals and businesses for decades. "I'd rather have a kinder, gentler approach to the process than to say, 'Let's give them more money and put more auditors into taxpayers' living rooms'. "

CATCHING TAX CHEATS

Some ideas being considered to ensure more Oregon individuals and businesses pay their taxes:

Tax amnesty: Oregon is one of the few states that has not offered a grace period for those who have not paid their full taxes in past years. An amnesty period - along with stiffer fines and the threat of prosecution for those who still don't step forward - could bring in millions of tax dollars, if other states' experiences are an indication.

Cyber-shaming: Oregon could join more than a dozen states that post on the Internet those individuals and businesses that are negligent in paying their taxes.

Abusive Tax Shelters: Oregon could look to other states again, spelling out which of these complex accounting schemes are illegal because they serve no economic purpose and exist for the sole purpose of tax avoidance.

Auditing: With IRS data that's cross-checkable against Oregon tax information, and the federal tax authority's de-emphasis in the past decade on auditing, some want the Legislature to hire more Department of Revenue auditors and charge them with more aggressively going after tax cheats.