Gaming the IRS' Third-Party Reporting System: Evidence from Pari-Mutuel Wagering

• 成果类型: Article
• 署名作者: Ferguson, Duke
• 署名单位: University of Kentucky
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12483
• 发表日期: 2023
• 页码: 1225-1261
• 关键词: tax; RISK

摘要

This study examines whether taxpayers intentionally avoid Internal Revenue Service (IRS) third-party reports. In 2017 an IRS amendment created a quasi-exogenous shock that reduced third-party tax reporting of pari-mutuel gambling winnings from certain types of wagers. I consider the effect that this rule change had on taxpayer behavior. Using a difference-in-differences research design comparing thoroughbred racing in the United States to Canada, I find a 27% increase in gambler's investment into wager-types that became less likely to trigger third-party reports. Further, I provide evidence that this effect was because of third-party reporting, not withholding, and was stronger in more informed gambling populations. These findings suggest that taxpayers knowingly avoid third-party reports, enabling underreporting of income to the IRS. This has important policy implications because underreported individual income is the largest driver of the $496 billion annual gap between legal tax liability and actual tax collections in the United States.