Companion to NCOS Working Paper v1.0 · Reference calibration Rmax 10%, m 6.00 ($1M) · ncos.world · November 2026
Intended audience: tax enforcement researchers, legal scholars, policy analysts
NCOS does not promise zero evasion. It promises a bounded evasion frontier. This note sets out the structure of that bound at the reference calibration. The first line of enforcement is third-party reporting: the National Verified Ledger takes asset values from land registries, custodians, brokers, lenders and corporate registries rather than from households, and the IRS’s own tax-gap studies show that third-party-reported amounts are misreported at about 1% against more than 50% for amounts with little or no third-party reporting. Financial inertness — the loss of U.S. enforceability, financing and insurance for unregistered assets — is the backstop for the genuinely mobile slice of wealth, reinforced by S17 withholding (ceiling 30–40%), the S7 exit settlement, a whistleblower reward, and criminal penalties for concealment. The estimated residual is about 6–10% of the top-tier base, well inside the 30% behavioral haircut applied to S1 revenue.
Revision note (October 2026). Earlier editions rested the enforcement case on financial inertness alone, arguing that its cost (about 2–4% of asset value a year) exceeds the S1 rate below about $100M of wealth. That held under the earlier calibration, when S1 was about 1.5% at $10M. At the reference calibration S1 is 6.6% at $3M and 8.0% at $10M, so the argument is restructured here around third-party reporting.
| Net wealth | S1 rate (reference) | Inertness cost (est. 2–4%/yr) | Does inertness alone deter hiding? |
|---|---|---|---|
| $1.00M | 5.0% | 2–4% | No — relies on third-party reporting, S17 and penalties |
| $3.00M | 6.6% | 2–4% | No — relies on third-party reporting, S17 and penalties |
| $10M | 8.0% | 2–4% | No — relies on third-party reporting, S17 and penalties |
| $30M | 8.9% | 2–4% | No — relies on third-party reporting, S17 and penalties |
| $100M | 9.4% | 2–4% | No — relies on third-party reporting, S17 and penalties |
| $500M | 9.8% | 2–4% | No — relies on third-party reporting, S17 and penalties |
For households above roughly $1M, the S1 obligation saved by hiding an asset exceeds the annual cost of losing its U.S. standing. Financial inertness therefore cannot be the primary deterrent across the range that pays most of S1. It remains decisive wherever an asset’s value depends on U.S. legal or financial infrastructure — which is most of it — and it is the reason hiding requires abandoning U.S. use of the asset entirely.
Most household wealth is held in forms that a third party records:
The NVL takes these values from the reporting institutions. A household cannot omit what it does not report. The IRS tax-gap studies give the empirical benchmark: about 1% net misreporting where third parties report and withhold, against 56% where they do not (TY2006; later studies are similar). The enforcement question therefore narrows to wealth that no U.S. third party sees.
Wealth that can genuinely avoid U.S. third-party reporting is limited: foreign accounts and foreign real estate with no U.S. financing, art and collectibles held abroad, and some digital assets. Estimates in the literature (e.g., Alstadsæter, Johannesen & Zucman 2019; Guyton et al. 2021) put offshore evasion at the very top at roughly 10–15% or more of the potential base under current law. Under NCOS this slice faces:
Because the reference curve is nearly flat at the top, the incentive to split a fortune is now small. A single $500M position pays 9.8%; ten $50M positions pay 9.2% each, saving about $3.07M a year (about 0.6% of wealth), compared with roughly $20M a year under the earlier calibration. Rule 1 (Substance Over Form) and Rule 2 (Entity Taxation) consolidate economically unified positions regardless.
Illiquid and unique assets are valued by the Dynamic Valuation Oracle. Under the Buy-Sell Safe Harbor the taxpayer’s declared value can be accepted, or the asset bought or a comparable position sold at that value, so the equilibrium report is the market value. Convergence target: average deviation below 5% for major asset classes within two to three cycles. The higher reference rates make this mechanism more important, not less; S18 governs the liquidity adjustment.
| Channel | Estimated residual | Primary mechanism |
|---|---|---|
| Mobile offshore wealth | 4–7% of top-0.1% wealth | S17 (30–40%), inertness, whistleblower, penalties |
| Synthetic de-concentration | <1% of base | Flat top of the curve; Rules 1 and 2 |
| Valuation arbitrage | <2% of base | Buy-Sell Safe Harbor; DVO |
| NVL edge cases | <1% of base | S17 withholding gradient |
| Combined | ~6–10% of the top-tier base (~2–4% of S1 revenue; ~2–3% of total revenue) | Third-party reporting plus backstops |
The residual is revised up from the earlier 5–8% because the reference rates are higher. It remains well inside the 30% behavioral haircut applied to S1 in the revenue model. For comparison, estimates in the literature (e.g., Alstadsæter, Johannesen & Zucman 2019; Guyton et al. 2021) put current offshore evasion at the very top at roughly 10–15% or more of the potential base; the 6–10% figure is the residual expected under NCOS (working paper Appendix D).
At the reference calibration, enforcement rests on what the government can see without asking: third-party records of homes, securities, businesses and retirement accounts. Financial inertness, strengthened S17 withholding, the exit settlement, a whistleblower reward and criminal penalties bound the mobile remainder. The research priorities for a future version are an empirical estimate of the non-third-party-reported share of top-tier wealth, calibration of Wmax and the whistleblower share, and dynamic modeling of emigration response.
Technical Note E1 — NCOS Working Paper v1.0 companion document · Enforcement Series · Cross-reference: Working Paper §5.2, Appendix D · Sources: IRS, "IRS Releases New Tax Gap Estimates" (TY2006 study); Zucman (2015) · ncos.world · November 2026