How do IRS Resources Affect the Corporate Audit Process?

2019 ◽  
Vol 95 (2) ◽  
pp. 311-338 ◽  
Author(s):  
Michelle Nessa ◽  
Casey M Schwab ◽  
Bridget Stomberg ◽  
Erin M. Towery
Keyword(s):  
Internal Revenue Service ◽  
Strategic Game ◽  
Audit Process ◽  
Publicly Traded ◽  
Budget Cuts ◽  
Corporate Tax ◽  
Negatively Associated ◽  
Internal Revenue ◽  
Audit Data ◽  
Tax Returns

ABSTRACT This study investigates how Internal Revenue Service resources affect the IRS audit process for publicly traded corporations. Using confidential IRS audit data, we examine the effect of IRS resources on the incidence and magnitude of proposed deficiencies and settlement outcomes. We find that IRS resources are positively associated with both the likelihood and magnitude of proposed deficiencies, but negatively associated with the proportion of proposed deficiencies collected. These results are consistent with the IRS focusing on fewer positions, but targeting positions supported by weaker taxpayer facts when resources are more limited. Based on our findings, we estimate the loss in tax collections from audits of LB&I corporate tax returns alone exceeds the savings from reductions in the IRS enforcement budget. This study contributes to the literature examining the strategic game between tax authorities and corporate taxpayers and has important implications for policymakers, particularly in light of recent IRS budget cuts.

Tax Practitioner Credentials and the Incidence of IRS Audit Adjustments

2003 ◽  
Vol 17 (1) ◽  
pp. 1-14 ◽  
Author(s):  
Peggy A. Hite ◽  
John Hasseldine
Keyword(s):  
Random Selection ◽  
Internal Revenue Service ◽  
Internal Revenue ◽  
Tax Returns ◽  
Selection Of

This study analyzes a random selection of Internal Revenue Service (IRS) office audits from October 1997 to July 1998, the type of audit that concerns most taxpayers. Taxpayers engage paid preparers in order to avoid this type of audit and to avoid any resulting tax adjustments. The study examines whether there are more audit adjustments and penalty assessments on tax returns with paid-preparer assistance than on tax returns without paid-preparer assistance. By comparing the frequency of adjustments on IRS office audits, the study finds that there are significantly fewer tax adjustments on paid-preparer returns than on self-prepared returns. Moreover, CPA-prepared returns resulted in fewer audit adjustments than non CPA-prepared returns.

The Role of Auditors, Non-Auditors, and Internal Tax Departments in Corporate Tax Aggressiveness

2015 ◽  
Vol 91 (1) ◽  
pp. 179-205 ◽  
Author(s):  
Kenneth J. Klassen ◽  
Petro Lisowsky ◽  
Devan Mescall
Keyword(s):  
Tax Compliance ◽  
Tax Planning ◽  
Internal Revenue Service ◽  
Corporate Tax ◽  
Tax Aggressiveness ◽  
Big 4 ◽  
Confidential Data ◽  
Tax Preparer ◽  
Tax Returns

ABSTRACT Using confidential data from the Internal Revenue Service on who signs a corporation's tax return, we investigate whether the party primarily responsible for the tax compliance function of the firm—the auditor, an external non-auditor, or the internal tax department—is related to the corporation's tax aggressiveness. We report three key findings: (1) firms preparing their own tax returns or hiring a non-auditor claim more aggressive tax positions than firms using their auditor as the tax preparer; (2) auditor-provided tax services are related to tax aggressiveness even after considering tax preparer identity, which supports and extends prior research using tax fees as a proxy for tax planning; and (3) Big 4 tax preparers, in particular, are linked to less tax aggressiveness when they are the auditor than when they are not the auditor. Our findings help policymakers and researchers better understand an important feature of tax compliance intermediaries; particularly, how the dual role via audits is related to observable corporate tax outcomes.

The Impact of Section 7491 on Requirements for Timely Filing Tax Returns

2004 ◽  
Vol 2 (1) ◽  
pp. 13-25
Author(s):  
A. Blair Staley ◽  
Donald T. Williamson
Keyword(s):  
Burden Of Proof ◽  
Internal Revenue Service ◽  
Internal Revenue ◽  
Tax Returns ◽  
The Law ◽  
The Impact

Section 7502 of the Internal Revenue Code (“I.R.C.”) provides that a timely filed tax return or other document will be considered received by the Internal Revenue Service (IRS) when mailed. Courts differ on whether I.R.C. § 7502 precludes a taxpayer from presenting credible evidence other than a physical postmark to establish when and if a tax return was timely filed. The article traces the development of the law interpreting when a tax return is considered “filed” and what evidence must be presented to prove that filing. It finds that the enactment of I.R.C. § 7491 in 1998, which shifts the burden of proof to the IRS under certain circumstances, does not resolve the issue of what evidence establishes filing. Under I.R.C. § 7491, the taxpayer must first present “credible evidence” of timely filing before the burden of proof shifts to the IRS. The issue remains unresolved whether the I.R.C. § 7502 mailbox rule is the only means for proving the timely filing of a tax return.

scholarly journals Earnings Risk in the Household: Evidence from Millions of US Tax Returns

2020 ◽  
Vol 2 (2) ◽  
pp. 237-254
Author(s):  
Seth Pruitt ◽  
Nicholas Turner
Keyword(s):  
Administrative Data ◽  
Certainty Equivalent ◽  
Internal Revenue Service ◽  
Aggregated Data ◽  
Related Research ◽  
Internal Revenue ◽  
Risk Increase ◽  
Tax Returns ◽  
Earnings Risk

Using detailed Internal Revenue Service administrative data on millions of households, we find that households effectively insure against much of the risk facing primary earners. We show that households face less risk than males alone, and households face roughly half the countercyclical risk increase. As a result of these risk differences, household certainty equivalent earnings are 19 percent higher than for males alone, and household certainty equivalent earnings fall by about half as much during recessions. To facilitate related research, we make available the aggregated data used in our analysis. (JEL D12, D13, E32, G51)

scholarly journals Selected US Tax Developments: Guidance on Qualified Shareholders of REITs Still Lacking

2019 ◽  
Vol 67 (4) ◽  
pp. 1309-1317
Author(s):  
Peter A. Glicklich ◽  
Heath Martin
Keyword(s):  
United States ◽  
Real Estate ◽  
Foreign Investment ◽  
Property Tax ◽  
The United States ◽  
Internal Revenue Service ◽  
Real Property ◽  
Publicly Traded ◽  
Real Estate Investment ◽  
Tax Returns

The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) imposes tax and withholding requirements with respect to gain realized by a foreign person on the disposition of an interest in real property located in the United States. The Protecting Americans from Tax Hikes Act of 2015 created two new exemptions from FIRPTA, one for foreign pension funds and another for "qualified shareholders," which are essentially foreign publicly traded real estate investment trusts (REITs). In order to qualify for the exemption for qualified shareholders, a foreign REIT would likely need to be designated by the Internal Revenue Service as a "qualified collective investment vehicle," but no guidance has been provided on how a foreign REIT may obtain such designation. In the absence of such guidance, the exemption for qualified shareholders is effectively unavailable, and as time passes, taxpayers are losing their ability to take advantage of the exemption in current- or prior-year tax returns. The authors suggest that a foreign publicly traded REIT be allowed to "self-designate" as a qualified collective investment vehicle if it meets certain requirements.

Measuring Interstate Migration Flows: An Origin—Destination Network Based on Internal Revenue Service Records

1981 ◽  
Vol 13 (11) ◽  
pp. 1345-1360 ◽  
Author(s):  
R A Engels ◽  
Mary K Healy
Keyword(s):  
Internal Revenue Service ◽  
Data Series ◽  
Interstate Migration ◽  
Internal Revenue ◽  
Current State ◽  
The Us ◽  
Tax Returns ◽  
Federal Income Tax ◽  
Migration Flows ◽  
Migration Determinants

This paper examines gross interstate migration flows for five periods for the years between 1969 and 1978. The analysis is based upon a newly available data source—Federal income tax returns. Approximately 90% of the US population is covered by this data series. The matching of Internal Revenue Service (IRS) returns between filing dates enables the determination both of the origin and of the destination of migrants, with few of the risks of geographic miscoding present. These data illustrate that despite divergent economic fluctuations over the past nine years, the patterns of interstate migration have remained virtually unchanged. With few exceptions, the number of migrants either leaving or entering a particular state comprise identical proportions over time. Unlike migration data obtained from the Current Population Survey which enables the study of regional mobility only, the IRS data document current state-to-state flows that can be constructed on an annual basis. Comparisons are also made with the Current Work History Sample. In addition, these data offer considerable evidence that current residence has a significant impact on the selection of a destination. The resistance of migration patterns to large economic and social shifts during the period examined also implies that the explanation of individual migration determinants and the forecasting of aggregate migration flows should be treated as separate research questions. The potential of the data for the addition of further demographic detail and for use in forecasting also is considered.

Estimating the Potential Revenue Impact of Taxing LIFO Reserves in the Current Low Commodity Price Environment

2018 ◽  
Vol 40 (2) ◽  
pp. 45-61
Author(s):  
Daniel P. Tinkelman ◽  
Christine E. L. Tan
Keyword(s):  
Commodity Prices ◽  
Commodity Price ◽  
Internal Revenue Service ◽  
Tax Revenue ◽  
Internal Revenue ◽  
Public Company ◽  
Tax Returns ◽  
Percent Rate ◽  
Inventory Method

ABSTRACT Public company LIFO reserves fell from 2012 to 2015, a time when commodity prices generally fell, and LIFO reserves and commodity prices both rose moderately in 2016. Using a combination of Internal Revenue Service (IRS) and public company data, we estimate overall U.S. LIFO reserves from 2012 to 2016, and the potential tax revenue impact of LIFO repeal. At a 35 percent (20 percent) rate, taxing the 2016 LIFO reserves would yield between $19 ($11) and $24 ($14) billion. Although less than 1 percent of 2013 corporate and partnership tax returns with inventory used LIFO, LIFO inventories comprised about 14 percent of the dollar value of U.S. company inventories. The findings on LIFO usage and the magnitude of LIFO reserves are relevant to deciding whether LIFO should be retained as an acceptable inventory method for taxes and U.S. GAAP, and also provide context for instructors teaching about inventory methods.

Insider Trading and IRC Section 6103(e)(1)(D)(iii)

2016 ◽  
Vol 14 (1) ◽  
pp. 58-71
Author(s):  
Roby B. Sawyers ◽  
David L. Baumer ◽  
Wade M. Chumney
Keyword(s):  
Insider Trading ◽  
Securities And Exchange Commission ◽  
Annual Reports ◽  
Corporate Tax ◽  
Legislative History ◽  
The Public ◽  
Internal Revenue ◽  
Tax Returns ◽  
History Of ◽  
Definition Of

ABSTRACT Tax returns, including corporate returns, are generally confidential and not disclosed to the public. However, in certain circumstances, Internal Revenue Code (IRC) Section 6103(e)(1)(D)(iii) provides that corporate shareholders who meet a 1 percent ownership criterion can request from the Internal Revenue Service (IRS) a copy of the corporate tax return. In this paper, we discuss the legislative history of IRC Section 6103 as it relates to tax return disclosure in general (for individual and corporate returns) and its precursors that provide for disclosure of corporate tax returns to shareholders who own more than 1 percent of the capital stock. We then provide examples of the valuable proprietary information that is included in corporate tax returns. Next, we provide a history and discussion of the insider trading laws and argue that the information content of a corporate tax return is such that it provides material nonpublic information that is not readily available in annual reports or other public documents filed with the Securities and Exchange Commission (SEC). While 1 percent shareholders do not meet the classical definition of an “insider,” we argue that they are similar to other “outsiders” who have been found liable for violating insider trading rules. We conclude by arguing that the actions of a 1 percent shareholder who requests and receives the corporate return and who subsequently makes purchases and/or sales of corporate stock should constitute illegal insider trading.

The political economy of tax enforcement: a look at the Internal Revenue Service from 1978 to 2010

2015 ◽  
Vol 36 (3) ◽  
pp. 335-380 ◽  
Author(s):  
Sutirtha Bagchi
Keyword(s):  
Political Ideology ◽  
The Body ◽  
Internal Revenue Service ◽  
Criminal Investigation ◽  
The Political ◽  
Party Affiliation ◽  
Tax Enforcement ◽  
Internal Revenue ◽  
Revenue Collection ◽  
Tax Returns

AbstractThis article looks at whether political ideology matters for enforcement of the nation’s tax laws. An analysis of the Internal Revenue Service (IRS) budget and personnel suggests that the party affiliation of the President makes no difference to the overall level of IRS resources. However, there are significant increases in the number of IRS employees devoted to criminal investigation and revenue collection under Democratic administrations. Audits of tax returns filed by corporations, individuals and estates are also significantly more likely under Democratic administrations. The body of evidence points in the direction that while Congress has a greater influence in determining the overall level of resources available to the IRS, the President has a more pronounced influence on the allocation of those resources.

Implicit Taxes Amid Race to the Bottom in a Global Tax Game

2020 ◽  
Vol 27 (2) ◽  
pp. 42
Author(s):  
Igor Semenenko ◽  
Junwook Yoo ◽  
Parporn Akathaporn
Keyword(s):  
Capital Mobility ◽  
Tax Rates ◽  
Corporate Tax ◽  
Firm Level ◽  
Race To The Bottom ◽  
Tax Subsidy ◽  
Tax Subsidies ◽  
Level Data ◽  
Tax Returns ◽  
Tax Hypothesis

Growing tax competition among national governments in the presence of capital mobility distorts equilibrium in the international corporate tax market. This paper is related to the literature that examines impact of international tax policies on corporate accounting statements. Employing international firm-level data, this study revisits the race-to-the-bottom hypothesis and documents that tax exemptions lowering effective tax rates relative to statutory rates increase pre-tax returns. This finding directly contradicts the implicit tax hypothesis documented by Wilkie (1992), who provided empirical evidence on inverse relationship between pre-tax return and tax subsidy. We also find evidences that relative importance of permanent versus timing component depends on the geography and that decline in corporate tax rates reduces impact of tax subsidies on profitability. Our findings suggest that tax subsidies play a different role than in 1968-1985, which was examined by Wilkie (1992). These results are consistent with the race-to-the-bottom hypothesis and income shifting explanation

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