Cooperative Tax Compliance Beyond the Largest Corporations: What Foreign Tax Monitoring Regimes Can Teach the United States About Reducing the SME Compliance Gap

The United States faces a persistent structural gap in tax compliance: while the Internal Revenue Service's Compliance Assurance Process (CAP) program provides large corporations with real-time, cooperative pre-filing oversight, small and medium-sized enterprises (SMEs) remain outside any analogous regime, contributing disproportionately to the estimated $696 billion gross tax gap recorded for tax year 2022. This study examines three established cooperative compliance programs, the Netherlands' Horizontal Monitoring (HM) model, Australia's Justified Trust framework, and Russia's Tax Monitoring regime, to identify design principles transferable to the U.S. fiscal context. Through comparative institutional analysis, systematic literature review, and case-study examination, the study finds that SME-adapted cooperative compliance, mediated by certified tax intermediaries and supported by AI-enabled compliance platforms, can demonstrably reduce voluntary misreporting while lowering enforcement costs for both taxpayers and revenue authorities. The research argues that a tiered SME-CAP program, drawing on foreign precedents and adapted to U.S. administrative law, would raise voluntary compliance rates across SME segments by an estimated 5 to 12 percentage points within a decade. The findings are of direct interest to U.S. tax policymakers, IRS administrators, tax practitioners, and legal scholars working at the intersection of fiscal law and administrative reform.

cooperative tax compliance, tax monitoring, tax gap, small and medium enterprises, Horizontal Monitoring Netherlands, Justified Trust Australia, IRS CAP program, tax control framework, voluntary compliance, AI-enabled tax compliance

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