An Empirical Examination of Corporate Tax Noncompliance

Abstract

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.