interesting comments from the taxpayer advocate

Linden Lab's recent announcement about banking is making the virtual world blog rounds and soaking up the policy discussions. However, while listening to NPR, I heard some interesting elements in the recently released National Taxpayer Advocate's 2007 Report to Congress. The first piece revisits the oft-discussed taxation issue. In the "Measures to Address Noncompliance in the Cash Economy" section, there is a section about reporting using online auctions as an example. From that section:

Problem
Historically, only large established merchants accepted payment cards (e.g., credit, debit, gift, and prepaid cards). Today, many small businesses take them. Cash and checks accounted for only 45 percent of payments in 2005, down from 57 percent in 2001. Payment cards handled purchases of $2.6 trillion in 2005, with the total expected to rise to over $4.7 trillion in 2010. Credit and debit cards also account for 80 percent of Internet payments, with an additional 9 percent from related services such as PayPal. Internet business activity, which is one of the fastest growing modes of commerce, is typically conducted using payment cards.

The report suggests that if the payment vendors were required to report these payments, taxpayers would be more likely to report their earnings:

Although gift cards and cash back transactions might make it difficult for the IRS to
reliably match payment card data against amounts reported on returns, the IRS could use payment card information to identify returns with a greater risk of noncompliance. In addition, research suggests that the knowledge that the IRS receives payment information significantly improves reporting compliance even for taxpayers who are not audited.

I think this is a great news for Linden Lab, eBay, and other businesses that leverage large numbers of user-to-user transactions. Rather than putting the reporting burden on the world operators, it places it on the payment vendors, who likely already have the necessary accounting and documentation processes in place.

The second interesting idea is a customer service concept. Apparently, several tax bureaus from other countries have the idea of paying the customer if the tax bureau makes a mistake.

[A] fair and just tax system should acknowledge IRS mistakes and delays in taxpayer issue resolution, and where such situations cause excessive expense or undue burden on the taxpayer, make a de minimis “apology” payment.

The IRS apologizing? What an interesting change. Maybe this is why the IRS is no longer the most hated US government department.

It makes me wonder, as online reputation and social systems become increasingly central to how we do business, communicate, and play, whether including the ability to apologize is as important as being able to say thank you. Linden Lab's "Love Machine," which I had originally conceived of as a way to tip or thank people for going above and beyond, is a positive-sum method of saying thanks. The idea has since popped up at other companies and as a Facebook app. But it didn't provide the complementary idea of a "mea culpa" machine. We often joked about it creating a "Hate Machine", but that isn't quite what you want. Instead, you'd want a way to capture what you did wrong and who your mistake impacted.

But I had never thought about an apology payment. Must do more research on that.