Negotiating Your Tax Bill

So in Taxation we have been talking about a lot of cases where the IRS disagrees with a taxpayer over the fair market value (FMV) of a nonliquid asset against which an income tax is to be levied. Invariably such disputes consist of the IRS valuing the item more highly than the taxpayer, because otherwise the IRS would accept the higher assessment and there would be no dispute. Costly litigation ensues, and the whole process is a monument to inefficiency once the courts get involved. So here's my proposal: Let the IRS only assess a basis to the extent that it is willing to pay for the asset..

Under my proposal, if i claim on my tax return that an asset is worth $50K and the IRS says it is worth $100K, i would get a choice: i can either pay tax on the $100K or sell the asset to the IRS for $100K and pay the tax on my $100K cash gain. Because i get to choose, i'm happy--or at least as happy as i can be paying taxes. Either way the IRS is happy, as it gets the tax on $100K, and its only potential cost is that of unloading a $100K asset if i choose to sell. And of course, if the IRS says its FMV is $100K then it should be able to unload the asset for a negligible transaction cost, and at any rate far cheaper than the cost of a court battle coupled with the prospect of defeat..

Of course, alternatives are plausible as well: We could force the owner to sell to the IRS at the owner's assessed price, or we could strike some balance between the two (perhaps the average?). Theoretically, at any price between the owner's assessment and the IRS's, both parties should be ecstatic to complete the sale of the item from the taxpayer to the IRS. Any party to any such transaction that complains is obviously being deceptive about its assessment of the item, and deserves whatever perceived penalty is imposed on it..

i wonder what the broader implications of such a policy would be. At first blush, it seems to confer an overwhelming increase in efficiency, but there may be more lurking here than i've noticed just yet. Because this proposal is not an alternate theory or method of taxation and merely provides economic incentives to discourage litigation, it could be implemented immediately and with no effect on the tax code itself. The biggest objection i can think of right now is that it puts the IRS in the role of a huge goods clearinghouse. But something tells me the IRS is big enough to pull this off, and should be able to find a liquid market. And again, if it can't find a buyer for any asset it is forced to purchase, perhaps it overvalued the asset in the first place..