Dividend Underreporting on Tax Returns

Abstract

A MERE CATALOGUE of the various headings under which the responses of individuals to high rates of corporate and personal income taxation might be analyzed would be larger than this paper. The briefest summary of all that has been conjectured on this same general problem would take up several volumes. Smaller would be the space required for a review of the established facts. It is this consideration that justifies our paper. For in a meager and modest way its findings fall in this latter category, with due recognition, of course, of the qualified nature of facts when discussing behavior. No analytical insights or play of powerful imagination will be set before you. Rather, I shall concentrate on the most direct and prosaic of responses to high tax rates, and even that in connection with a relatively small number of taxpayers. More specifically, this paper deals with the underreporting of dividends for tax purposes by examining the amount and, more particularly, the percentage of aggregate dividend receipts that cannot be accounted for on tax returns. It summarizes the evidence bearing on this matter with reference, initially, to two questions: (1) How important is the underreporting of dividends? (2) What has been the trend in dividend reporting on tax returns, i.e., has stockholders' zeal in reporting their dividend receipts varied in response to changes in tax rates?