As the U.S. tax code becomes increasingly complex, particularly in the realm of partnership taxation, various laws are often implemented without considering their effects on the overall tax system. Such laws not only create confusion among well-meaning taxpayers, but can be exploited by highly paid tax professionals in order to create perverse results not anticipated by policy-makers. To get an idea of an impact scale, Rosen and Hemberg’s team cites a May 2014 Government Accountability Office report, which claims that taxpayers underreported more than $91 billion of income annually between 2006 and 2009 through the use of partnerships and other “flow-through entities.” It’s an upward trend that shows little sign of stopping.

By representing partnership taxation in a computational model, Rosen and Hemberg’s research group at the Massachusetts Institute of Technology (MIT), teamed with The MITRE Corporation, sought to identify the parts of partnership taxation that likely cause the most confusion and potentially abusive activity. In his presentation, Rosen was careful to delineate the difference between tax evasion and tax non-compliance; while much of this activity seems abusive, because it complies with current tax code–which hasn’t caught up to commercial non-compliance tactics–it technically is legal in the eyes of the Internal Revenue Service.

Their paper received the Peter Jackson Award for Best Innovative Application Paper at the 15th International Conference on Artificial Intelligence and Law (ICAIL) in June 2015, and has gained traction in the press after visiting Cornell this fall. Rather than go further in-depth here, we recommend either reading the paper, visiting The STEALTH (Simulating Tax Evasion And Law Through Heuristics) Project website or watching Rosen’s presentation, as he is far more capable of communicating their complex research methodology.

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