Behavioral Effects of Tax Enforcement on Non-Compliant Business Taxpayers: Evidence from Administrative Tax Data

• In Event: Tax Evasion, Corporate Behavior, and Norms

Abstract

The US income tax system relies on taxpayers who voluntarily file, report, and pay their tax liabilities. How to better motivate the taxpayers to comply with the tax law is an important operational challenge. Business taxpayers are an important player in tax administration because they not only have income tax obligations, they also withhold and pay the majority of the income and employment tax obligations of their employees. In this paper we examine how enforcement actions impact the compliance behavior of business taxpayers with unpaid tax assessments.
We employ data from the decade leading up to the pandemic (2010-2019) to study behavioral effects of IRS’ tax interventions on non-compliant business taxpayers. Our regression analysis shows that tax filing and payment enforcement programs have a significant direct impact on securing business delinquent tax returns, in a timely manner. Among these tax treatments, notices with deterrence messages such as Notice of Intent to Levy, which emphasize the penalty enforcement for the continuing tax compliance behavior, are more effective to collect the default tax. We also find evidence of indirect impacts: when the tax administration’s appropriation had fallen and enforcement capability had shrunk during 2010-2019, delinquent business taxpayers in general were less likely to resolve their tax debt.

Authors

• Alex Turk, Internal Revenue Service

• Yan Sun, Internal Revenue Service

• Brett Collins, Internal Revenue Service

• Mark Payne, Internal Revenue Service

• Hyeongyul "Sean" Roh, sean.roh@irs.gov

• Chris Wilson, IRS