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Jeffrey Pittman - One of the best experts on this subject based on the ideXlab platform.
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do irs audits deter corporate tax avoidance
The Accounting Review, 2012Co-Authors: Jeffrey L Hoopes, Devan Mescall, Jeffrey PittmanAbstract:ABSTRACT: We extend research on the determinants of corporate tax avoidance to include the role of Internal Revenue Service (IRS) monitoring. Our evidence from large samples implies that U.S. public firms undertake less aggressive tax positions when tax enforcement is stricter. Reflecting its first-order economic impact on firms, our coefficient estimates imply that raising the probability of an IRS audit from 19 percent (the 25th percentile in our data) to 37 percent (the 75th percentile) increases their cash effective tax rates, on average, by nearly two percentage points, which amounts to a 7 percent increase in cash effective tax rates. These results are robust to controlling for firm size and time, which determine our primary proxy for IRS enforcement, in different ways; specifying several alternative dependent and test variables; and confronting potential endogeneity with instrumental variables and panel data estimations, among other techniques. JEL Classifications: M40; G34; G32; H25.
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do irs audits deter corporate tax avoidance
Social Science Research Network, 2011Co-Authors: Jeffrey L Hoopes, Devan Mescall, Jeffrey PittmanAbstract:We extend research on the determinants of corporate tax avoidance to include the role of Internal Revenue Service (IRS) monitoring. Our evidence from large samples implies that U.S. public firms undertake less aggressive tax positions when tax enforcement is stricter. Reflecting its first-order economic impact on firms, our coefficient estimates imply that raising the probability of an IRS audit from 19 percent (the 25th percentile in our data) to 37 percent (the 75th percentile) increases their cash effective tax rates, on average, by nearly 2 percentage points, which amounts to a 7 percent increase in cash effective tax rates. These results are robust to controlling for firm size and time, which determine our primary proxy for IRS enforcement, in different ways; specifying several alternative dependent and test variables; and confronting potential endogeneity with instrumental variables and panel data estimations, among other techniques.
Jeffrey L Hoopes - One of the best experts on this subject based on the ideXlab platform.
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does credit card information reporting improve small business tax compliance
Journal of Public Economics, 2017Co-Authors: Joel Slemrod, Brett Collins, Jeffrey L Hoopes, Daniel Reck, Michael SebastianiAbstract:We investigate the response of small businesses operating as sole proprietorships to Form 1099-K, an information report introduced in 2011 which provides the Internal Revenue Service with information about electronic sales (e.g., credit card sales). The overall impact of the policy appears to be relatively small. However, theory and distributional analysis isolates a subset of taxpayers expected to be especially sensitive to reporting, who report receipts equal to or slightly exceeding the receipts reported on 1099-K. Among this set of taxpayers, information reporting induced more complete tax reporting–30% of sensitive taxpayers filed a return declaring business income for the first time, and among those that were already filing, we estimate an increase in reported receipts by up to 24%. These taxpayers largely offset increased reported receipts with increased reported expenses, which do not face information reporting, diminishing the impact on reported net taxable income.
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does credit card information reporting improve small business tax compliance
2015Co-Authors: Joel Slemrod, Brett Collins, Jeffrey L Hoopes, Daniel Reck, Michael SebastianiAbstract:We investigate the response of small businesses operating as sole proprietorships to Form 1099-K, an information report introduced in 2011 which provides the Internal Revenue Service with information about electronic sales. Theory and distributional analysis isolates affected taxpayers, who report receipts equal to or slightly exceeding the receipts reported on 1099-K. Information reporting made these taxpayers more likely to file a return declaring business income, and increased filers’ reported receipts by up to 24 percent. Taxpayers largely offset increased reported receipts with increased reported expenses, which do not face information reporting, diminishing the impact on reported net taxable income.
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does credit card information reporting improve small business tax compliance
LSE Research Online Documents on Economics, 2015Co-Authors: Joel Slemrod, Brett Collins, Jeffrey L Hoopes, Daniel Reck, Michael SebastianiAbstract:We investigate the response of small businesses operating as sole proprietorships to Form 1099-K, an information report released in 2011 which provides the Internal Revenue Service with information about payment card sales. Theory and distributional analysis isolates affected taxpayers, who report receipts equal to or slightly exceeding the receipts reported on 1099-K. Information reporting made these taxpayers more likely to file a return declaring business income, and increased filers’ reported receipts by up to 24 percent. Taxpayers largely offset increased reported receipts with increased reported expenses, which do not face information reporting, diminishing the impact on reported net taxable income.
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do irs audits deter corporate tax avoidance
The Accounting Review, 2012Co-Authors: Jeffrey L Hoopes, Devan Mescall, Jeffrey PittmanAbstract:ABSTRACT: We extend research on the determinants of corporate tax avoidance to include the role of Internal Revenue Service (IRS) monitoring. Our evidence from large samples implies that U.S. public firms undertake less aggressive tax positions when tax enforcement is stricter. Reflecting its first-order economic impact on firms, our coefficient estimates imply that raising the probability of an IRS audit from 19 percent (the 25th percentile in our data) to 37 percent (the 75th percentile) increases their cash effective tax rates, on average, by nearly two percentage points, which amounts to a 7 percent increase in cash effective tax rates. These results are robust to controlling for firm size and time, which determine our primary proxy for IRS enforcement, in different ways; specifying several alternative dependent and test variables; and confronting potential endogeneity with instrumental variables and panel data estimations, among other techniques. JEL Classifications: M40; G34; G32; H25.
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do irs audits deter corporate tax avoidance
Social Science Research Network, 2011Co-Authors: Jeffrey L Hoopes, Devan Mescall, Jeffrey PittmanAbstract:We extend research on the determinants of corporate tax avoidance to include the role of Internal Revenue Service (IRS) monitoring. Our evidence from large samples implies that U.S. public firms undertake less aggressive tax positions when tax enforcement is stricter. Reflecting its first-order economic impact on firms, our coefficient estimates imply that raising the probability of an IRS audit from 19 percent (the 25th percentile in our data) to 37 percent (the 75th percentile) increases their cash effective tax rates, on average, by nearly 2 percentage points, which amounts to a 7 percent increase in cash effective tax rates. These results are robust to controlling for firm size and time, which determine our primary proxy for IRS enforcement, in different ways; specifying several alternative dependent and test variables; and confronting potential endogeneity with instrumental variables and panel data estimations, among other techniques.
C C Yang - One of the best experts on this subject based on the ideXlab platform.
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on the Internal Revenue Service s Service and enforcement
Economic Inquiry, 2015Co-Authors: Tsungsheng Tsai, C C YangAbstract:I. INTRODUCTION The Internal Revenue Service (IRS) Services as well as audits taxpayers. The IRS provides taxpayer Service through a variety of channels, including its website, toll-free telephone lines, and the Taxpayer Assistance Center. For FY 2008, the IRS budget request includes $3.6 billion for taxpayer Service and $7.2 billion for enforcement (Everson 2007). In the assessment of the FY 2009 IRS budget request, the Government Accountability Office (GAO, 2008, 1) points out that "effective tax administration requires a balance of Service and enforcement" and "enforcement efforts should be combined with taxpayer Service because both affect compliance." Although taxpayer Service is an important activity of the IRS's operation, to our knowledge, there is no formal model to address the connection between Service and enforcement and, more importantly, its policy implications in the context of tax compliance. This article seeks to take a step to fill this void. We consider a simple tax compliance model, which is built upon the seminal work of Graetz, Reinganum, and Wilde (1986) (hereafter GRW). Unlike the classical contribution of Allingham and Sandmo (1972) and Yitzhaki (1974), which treats the IRS actions as exogenous in their analysis of tax evasion, the GRW model views the IRS as a strategic player that interacts with taxpayers. The GRW model also differs from the principal-agent tax evasion model first introduced by Reinganum and Wilde (1985). As pointed out by GRW, the principal-agent model suffers from the time inconsistency problem as it requires that the IRS announce and commit to an audit policy, even though the precommitted audit policy will typically prove suboptimal once taxpayers submit their reported income. GRW emphasize that their interactive model follows the natural temporal sequence of decisions: first, taxpayers report their income, and only then does the IRS decide whether to perform tax audits. This sequence is what we typically observe in the real world. (1) However, like other models on tax compliance, GRW consider the enforcement part but leave out the Service part of the IRS activities. We extend the GRW model to the real world in which the IRS Services as well as audits taxpayers. Similar to GRW, we assume that a taxpayer has either high income or low income. To incorporate the role of the IRS's Service, we also assume that taxpayers are uncertain about whether their incomes are eligible for deduction/exemption, and may seek advice from the taxpayer Service provided by the IRS to mitigate the uncertainty. An important feature of our model is that, in equilibrium, all net tax Revenues collected by the IRS are from those taxpayers who voluntarily report high incomes to the IRS. To maximize the population of the taxpayers in this group, the IRS will not provide the most accurate Service but only maintain an intermediate level of quality. The optimal level of accuracy will be increasing as the difficulty in identifying the true income eligibility increases, which may be due to more complicated tax laws. Moreover, there exists a conflict between the IRS and the society with regard to the optimal taxpayer Service, in that the society's preferred quality of taxpayer Service is likely to be sufficiently high. The conflict tends to be intensified as the cost of tax audits becomes lower. Our result is consistent with the trend in the United States regarding the resources allocated to the taxpayer Service in the past few decades. We also extend our model in the following two directions. The first extension is to address the issue of corruption in tax administration. Many developing countries suffer from inefficiencies in tax administration and corruption arising from enforcement. Some authors argue that it is important for developing countries to recognize the "Service paradigm" of tax compliance, which emphasizes not only the role of enforcement but also the role of taxpayer Service. …
Lillian F Mills - One of the best experts on this subject based on the ideXlab platform.
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taxes and financial constraints evidence from linguistic cues
Journal of Accounting Research, 2015Co-Authors: Lillian F MillsAbstract:type="main"> Using a new measure of financial constraints based on firms’ qualitative disclosures, we find that financially constrained firms—firms that use more negative words in their annual reports—pursue more aggressive tax planning strategies as evidenced by: (1) higher current and future unrecognized tax benefits, (2) lower short- and long-run current and future effective tax rates, (3) increase in tax haven usage for their material operations, and (4) higher proposed audit adjustments from the Internal Revenue Service. We exploit the unexpected closures of local banks as exogenous liquidity shocks to show that firms’ external financial constraints affect their tax avoidance strategies. Overall, the linguistic cues in firms’ qualitative disclosures provide incremental information beyond traditional accounting variables or commonly used effective tax rates to reveal and predict tax aggressiveness, both contemporaneously and in the future.
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an empirical examination of corporate tax noncompliance
Social Science Research Network, 2007Co-Authors: Michelle Hanlon, Lillian F Mills, Joel SlemrodAbstract:We appreciate guidance on data questions from Richard Denesha, Donald Lee, John Miller, and Dick Teed. We are grateful for comments on a presentation of preliminary results received from Charles Brown, James Hines, and other members of the University of Michigan public finance workshop and for comments received at the conference from discussants Joe Bankman and Brian Erard, and several other participants. The Internal Revenue Service (IRS) provided confidential tax information to one of the authors pursuant to provisions of the Internal Revenue Code that allow disclosure of information to a contractor to the extent necessary to perform a research contract for the IRS. None of the confidential tax information received from the IRS is disclosed in this chapter. Statistical aggregates were used so that a specific taxpayer cannot be identified from information supplied by the IRS. Information in this chapter that identifies specific companies was not provided by the IRS and came from public sources, such as reports to shareholders. Introduction and motivation This chapter examines the extent and nature of corporate tax noncompliance using previously undisclosed Internal Revenue Service (IRS) operational audits and appeals data merged with confidential tax return data. The extent of tax noncompliance is primarily measured as the level of proposed tax deficiencies under IRS audit, although we also investigate the amount of the proposed deficiencies that are upheld after taxpayer appeals.
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book tax differences and Internal Revenue Service adjustments
Journal of Accounting Research, 1998Co-Authors: Lillian F MillsAbstract:*University of Arizona. This paper comprises a portion of my dissertation from the University of Michigan, entitled "Essays in Corporate Tax Compliance and Financial Reporting." I appreciate the guidance of my committee: Russell Lundholm and Joel Slemrod (cochairs), and Roger Gordon and Douglas Skinner. I am grateful for financial support from the Deloitte and Touche Foundation and the Paton Foundation of the University of Michigan. This paper has been improved through many helpful comments by workshop participants at the University of Arizona, the University of Chicago, the University of Georgia, the University of Iowa, the Massachusetts Institute of Technology, the University of North Carolina, Northwestern University, and the University of Southern California. I also appreciate the assistance of an anonymous reviewer, whose suggestions improved the paper immensely. Confidential data were provided by the Internal Revenue Service Coordinated Examination Program, Office of Special Studies. All opinions expressed are the opinions of the author solely and do not reflect any views of the Internal Revenue Service. 1 Most of the intertemporal or cross-jurisdictional income-shifting research on the Tax Reform Act of 1986 assumes that book income shifting is equivalent to, or at least a necessary condition for, taxable income shifting. See Scholes, Wilson, and Wolfson [1992], Guenther [1994], Maydew [1997], Klassen, Lang, and Wolfson [1993], and Harris [1993]. In addition, the earnings management literature in accounting often includes a measure of potential tax savings, such as a dummy variable for tax-paying status, or an estimate of the
Michael Sebastiani - One of the best experts on this subject based on the ideXlab platform.
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does credit card information reporting improve small business tax compliance
Journal of Public Economics, 2017Co-Authors: Joel Slemrod, Brett Collins, Jeffrey L Hoopes, Daniel Reck, Michael SebastianiAbstract:We investigate the response of small businesses operating as sole proprietorships to Form 1099-K, an information report introduced in 2011 which provides the Internal Revenue Service with information about electronic sales (e.g., credit card sales). The overall impact of the policy appears to be relatively small. However, theory and distributional analysis isolates a subset of taxpayers expected to be especially sensitive to reporting, who report receipts equal to or slightly exceeding the receipts reported on 1099-K. Among this set of taxpayers, information reporting induced more complete tax reporting–30% of sensitive taxpayers filed a return declaring business income for the first time, and among those that were already filing, we estimate an increase in reported receipts by up to 24%. These taxpayers largely offset increased reported receipts with increased reported expenses, which do not face information reporting, diminishing the impact on reported net taxable income.
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does credit card information reporting improve small business tax compliance
2015Co-Authors: Joel Slemrod, Brett Collins, Jeffrey L Hoopes, Daniel Reck, Michael SebastianiAbstract:We investigate the response of small businesses operating as sole proprietorships to Form 1099-K, an information report introduced in 2011 which provides the Internal Revenue Service with information about electronic sales. Theory and distributional analysis isolates affected taxpayers, who report receipts equal to or slightly exceeding the receipts reported on 1099-K. Information reporting made these taxpayers more likely to file a return declaring business income, and increased filers’ reported receipts by up to 24 percent. Taxpayers largely offset increased reported receipts with increased reported expenses, which do not face information reporting, diminishing the impact on reported net taxable income.
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does credit card information reporting improve small business tax compliance
LSE Research Online Documents on Economics, 2015Co-Authors: Joel Slemrod, Brett Collins, Jeffrey L Hoopes, Daniel Reck, Michael SebastianiAbstract:We investigate the response of small businesses operating as sole proprietorships to Form 1099-K, an information report released in 2011 which provides the Internal Revenue Service with information about payment card sales. Theory and distributional analysis isolates affected taxpayers, who report receipts equal to or slightly exceeding the receipts reported on 1099-K. Information reporting made these taxpayers more likely to file a return declaring business income, and increased filers’ reported receipts by up to 24 percent. Taxpayers largely offset increased reported receipts with increased reported expenses, which do not face information reporting, diminishing the impact on reported net taxable income.