Individual Income Tax Compliance and Information Reporting: What Do the U.S. Data Show?

Abstract

This paper examines 2001 National Research Program data to assess the role of information reporting in explaining individual income tax compliance in the United States. Taxpayers are largely compliant in self-reporting third-party "matched" income; furthermore, many taxpayers underreport 100 percent of "unmatched" income. However a majority of noncompliant taxpayers, particularly those with large amounts of unmatched income, underreport only a portion of it. Taxpayers exhibit signifcant heterogeneity with regard to the critical amount of unmatched income at which they switch from full to partial noncompliance. The increase in underreported income that arises from a marginal increase in unmatched income also varies across taxpayers.

Make Me Want to Pay. A Three-Way Interaction Between Procedural Justice, Distributive Justice, and Power on Voluntary Tax Compliance

“…In the tax compliance context, power of the tax authorities is defined as “tax authorities’ capacity to detect and punish tax crimes” (Wahl et al, 2010, p. 385; see also Kirchler et al, 2008). Empirical research on the effects of the power of tax authorities focused on detection probabilities (e.g., Phillips, 2014), fines (e.g., Cebula, 2014), and audits (e.g., Bernasconi et al, 2014).…”

Election Outcome and Tax Compliance: The Role of Political Party Affiliation, Affect Balance, and Trust in Government

“…Participants were asked to assume that they had earned $6,500 cash from a side business for which there was no documentation or paper trail. Income not subject to third party reporting (i.e., unmatched income) was used because prior research suggests many American taxpayers under‐report this type of income (e.g., Government Accountability Office, ; Phillips, ). They were made aware that, according to US tax laws, the $6,500 earned from the side business represented taxable income.…”

The Relative Tax Gap Hypothesis: An Exploratory Analysis and Application to U.S. Financial Markets

“…In any nation having a personal income tax in place, personal income tax evasion consists largely of taxable income that is either unreported or underreported by households to the Internal Revenue Service (IRS) or to its counterpart government tax collection authority outside the U.S. Insofar as the U.S. is concerned, personal income tax evasion can also consist of either spurious or inflated tax deductions or fabricated exemptions or other misrepresentations on various IRS tax forms. Such IRS forms might include Form 1040 itself or Form 1040-EZ and/or Form 1040 Schedules A, C, C-EZ, and E, among others (Phillips, 2014). Scholarly research inquiries into the various dimensions of income tax evasion, especially personal income tax evasion but to some degree corporate tax evasion as well, fall into a number of distinct and rather broad categories.…”

“…The first of these takes the form of endeavors to quantify the magnitude or impacts of the aggregate degree of federal income tax evasion in the macro-economy (Frey, Weck, and Pommerehne, 1982;Isachsen and Strom, 1985;Bajada, 1999;Giles, 1999;Fisman and Wei, 2004;Ledbetter, 2004Ledbetter, , 2007Cebula, 2018Cebula, , 2019Gale and Krupkin, 2019). The second component attempts to identify factors that influence the degree/extent of aggregate federal personal income tax evasion or compliance (Kirchgaessner, 1983;Hill and Kabir, 1996;Cebula, 1997Cebula, , 2004Friedman, Johnson, Kaufmann, and Zoido-Labton, 2000;Ali, Cecil, and Knoblett, 2001;Fisman and Wei, 2004;Martinez-Vazquez and Rider (2005); Richardson, 2006;Dell'Anno, 2007;Engstrom and Holmlund, 2009;Cebula and Feige, 2012;Ariyo and Belcoe, 2012;Phillips, 2014;Ameyaw and Dzaka, 2016;Chatzimichael, Kalaitzidakis, and Tzouvelekas, 2019). Some of these studies focus upon individual tax returns, such as the relatively recent study by Phillips (2014), although most focus on more aggregative data.…”

“…The second component attempts to identify factors that influence the degree/extent of aggregate federal personal income tax evasion or compliance (Kirchgaessner, 1983;Hill and Kabir, 1996;Cebula, 1997Cebula, , 2004Friedman, Johnson, Kaufmann, and Zoido-Labton, 2000;Ali, Cecil, and Knoblett, 2001;Fisman and Wei, 2004;Martinez-Vazquez and Rider (2005); Richardson, 2006;Dell'Anno, 2007;Engstrom and Holmlund, 2009;Cebula and Feige, 2012;Ariyo and Belcoe, 2012;Phillips, 2014;Ameyaw and Dzaka, 2016;Chatzimichael, Kalaitzidakis, and Tzouvelekas, 2019). Some of these studies focus upon individual tax returns, such as the relatively recent study by Phillips (2014), although most focus on more aggregative data. However, despite the substantial breadth, diversity, and depth of this tax evasion literature, to date no scholarly study has addressed the impact of the tax gap per se on the market for U.S. Treasury debt issues.…”