Tax Return Data Research Articles

Sharing the gains of transition: Evaluating changes in income inequality and redistribution in Poland using combined survey and tax return data

We use Pareto imputation, survey reweighting, and microsimulation methods applied to combined household survey and tax return data to re-evaluate trends in income inequality and redistribution in the follow up of the post-socialist transition in Poland. Our approach results in the first estimates of top-corrected inequality trends for real equivalised disposable incomes over the years 1994–2015, a period so far believed to represent a time of not only stable and but also equitable growth. The adjustments applied suggest that the Gini coefficient grew by 14–26% more compared to the uncorrected survey-based estimates. This indicates that over the last three decades Poland has become one of the most unequal European countries among those for which top-corrected inequality estimates exist. Looking at different centiles of the distribution shows that incomes at the top grew fastest during the post-transition years: the annual rate of growth of the 95-99th percentiles of income distribution exceeded 3.5%, while the median income grew by about 2.6%.The findings shed a new light on recent political developments in Poland.

IPOs and Corporate Taxes

How does going public affect firms’ tax obligations and tax planning? Using a panel of U.S. corporate tax return data from 1994 to 2018, we compare tax payments for firms that completed an IPO with those that filed for an IPO but later withdrew and remained private. We find that in the years immediately following IPO completion, firms have a higher probability of paying taxes and pay more U.S. tax. The effects occur regardless of tax status in the pre-IPO period and are not explained by statutory limitations imposed on the use of pre-IPO losses. Higher income reported for financial reporting purposes, as well as lower interest deductions attributable to debt repayment, contribute to the increased tax payments. These increases are partially offset by higher tax deductions for post-IPO investment and employment spending. Furthermore, the IPO is associated with increased tax planning through foreign tax haven use. The evidence adds to the nascent literature examining corporate tax implications of the IPO decision.

Summaries of Articles

Summaries of Articles

How to Tax Different Incomes?

We study the optimal tax system when taxpayers earn different kinds of income by supplying different inputs. Imperfect substitution between inputs allows for general equilibrium effects. We consider any type of cross-base responses to tax changes such as income-shifting. Formalizing the tax schedule as the sum of many one-dimensional schedules, we express optimal marginal tax rate on any kind of income in terms of sufficient statistics, including new ones for cross-base responses and general equilibrium effects. We also identify the conditions under which making the personal income tax marginally more schedular is socially desirable. The comprehensive and schedular (dual, in particular) income taxes being recurring proposals in the public debate, we derive sufficient conditions under which each form of tax is optimal. We stress how empirically restrictive these conditions are. Using a new algorithm on French tax return data, we characterize the optimal combination of a nonlinear tax schedule on personal income and a linear tax rate on capital income. We find that one should include, without any deduction, all income sources in the personal income base and subsidize the source of income which is more elastic. We find that crossbase responses have little effects on the personal nonlinear income tax schedule but increases by 5.9 to 6.9 percentage points the capital tax rate. General equilibrium effects also increases this tax rate by around 4.5 percentage points.

The Role of Instructor Due Diligence in Volunteer Income Tax Assistance (VITA): Evidence From One University-Level Program

This paper reviews the tax preparation practice of one university-level Volunteer Income Tax Assistance (VITA) program to determine the role, if any, due diligence requirements for paid preparers should have on student preparers. The due diligence requirements as outlined in Circular 230 apply to paid preparers. The Volunteer Standards of Conduct are outlined in IRS publication 4012 and apply to VITA volunteers who are often students. This study analyzes the tax challenges faced by student prepares in a VITA program, and how the increased due diligence standards required of the IRS for paid preparers would be beneficial to the students participating in a VITA program. The study models tax return data to show the financial benefit application of due diligence standards would have for the Internal Revenue Service. The goal of this paper is to show the importance of higher due diligence standards, and we contribute to the literature by providing the first review of VITA tax preparation through the lens of paid-preparer due diligence requirements.

An Ex-Ante Assessment of the AGI: Firm-Level Evidence from Belgian Tax Return Data

Abstract Using confidential tax return data, we provide a unique research setting in which the Belgian notional interest deduction (NID) is replaced by the Allowance for Growth and Investment (AGI) as it is proposed by the European Commission. Our results show that the AGI would be a more viable option from a budgetary view. From a company view, however, introducing an AGI system would increase the probability of a higher effective tax rate (ETR). Especially large companies would be harmed as they would face a 7.6 percentage point higher probability of an ETR increase compared with SMEs. Furthermore, we find that there is a positive relationship between the equity ratio and the increased ETR, which is stronger for large firms compared to SMEs. This is in line with previous studies stating that large firms adjusted more aggressively to the NID by increasing their equity ratio more heavily than SMEs. However, large firms still face an ETR that is on average 10.4 percentage points lower compared with SMEs, indicating that the AGI is insufficient to undo the unequal level playing field between large and small companies. (JEL codes: H21, G32, H25, K34).

How do taxpayers respond to tax subsidy for long-term savings? Evidence from Thailand's tax return data.

This paper uses a panel of personal income tax return data for the population of Thai tax filers to examine how individuals respond to tax subsidy for long-term savings. We utilize the 2013 tax reform that lowered the price subsidy for long-term savings in order to obtain causal identification. Our difference-in-difference analysis illustrates that there is a considerable heterogeneity in the individual responses to the subsidy cut—with middle-income taxpayers responding much more than their high-income counterparts. Among the middle-income group, we also find that the subsidy reduction has larger effects on decisions of smaller contributors. Our findings shed light on the heterogeneity of individual responses which are crucial for policymakers who consider an incremental change in the existing tax incentive scheme.Supplementary InformationThe online version contains supplementary material available at 10.1007/s10797-021-09687-w.

Which Families Benefited from the Recent Personal Income Tax Reform in Taiwan: Evidence from the Administrative Data.

This paper examines the changes in vertical equity across different types of tax filing families during the span of a series of drastic personal income tax reforms in Taiwan. The newly enacted 2016 Taxpayer Rights Protection Act has brought unprecedented challenges to the tax authority’s distributional goal and revenue stability. Utilizing the administrative tax return data collected by the Ministry of Finance’s Fiscal Information Agency between 2016 and 2018, we show that while the income tax has contributed to improving equality in income distribution, the effects, however, were limited and even declined slightly in recent years. We also found that distributions of tax benefits are generally regressive, especially among itemized and special deductions. It is also shown that the personal exemption and the adjustments of basic living expenses provided comparably more relief to households with dependents than to those claiming no dependents. According to our two-parameter metric encompassing the usage rates and the tax-benefit distributions for each deduction, we found that itemized deductions and special deductions, in general, are regressive. Specifically, we calculate and compare different representative families’ tax payments before and after the reform. While the tax reform has helped reduce many tax-filing families’ tax liabilities, most tax benefits generated from the expansion of exemptions and deductions would likely be enjoyed by families with higher incomes. In a broader reform-minded context, the analysis cautions the tax authority in Taiwan and equity pursuing policy makers in other countries not to prioritize an overarching short-term equity goal over long-term revenue stabilization. Phasing out or capping some of the itemized deductions such as donations and special deductions related to discretionary purchasing decisions looks to be a promising reform path toward improving equity and restoring revenue stability.

Who Sells During a Crash? Evidence from Tax Return Data on Daily Sales of Stock

Abstract Using United States tax return data containing the universe of individual taxable stock sales from 2008 to 2009, we examine which individuals increased their sale of stocks following episodes of market tumult. We find that the increase was disproportionately concentrated among investors in the top 1% and top 0.1% of the overall income distribution, retired individuals and individuals at the very top of the dividend income distribution. Our estimates suggest that, following the day when Lehman Brothers collapsed, taxpayers in the top 0.1% sold $1.7 billion more in stocks than individuals in the bottom 75%. This difference is equal to 89% of average daily sales by taxpayers in the top 0.1%.

U.S. Individual Income Tax Return Simulated Data: A Methodology

ABSTRACTThis paper proposes and tests a methodology for the development of simulated data for individual income tax returns in the U.S., enabling students of taxation and accounting, and other interested parties, to examine changes to the tax code, the effects of tax planning alternatives, and conduct repeated experimental testing on tax return data. The simulation draws insight from statistical and economic literature into the stochastic nature of certain line items from the tax returns, using the information provided by the Internal Revenue Service's (IRS) Statistics of Income (SOI) program. The simulation produced data for 147,000 tax returns, representing ∼1 percent of the population of filed tax returns, and was then validated against the results of the summary data provided by IRS SOI. Our simulated data closely matched the number and combined dollar value of the IRS SOI summary data at the AGI, state, and filing status levels.

The Importance of Qualitative Research Approaches to Gig Economy Taxation

As the United States tax system continues to grapple with how to tax workers in the gig economy, it confronts a number of questions about the nature and composition of the sector as well as the tax issues confronted by its participants. Many of these questions have proven difficult to answer due to a lack of adequate information. But the answers are important and will shape how tax and other areas of law (such as employment law, labor law, and antitrust) respond to the gig economy. Thus, the question of how to obtain the data and information necessary to formulate sound policies for gig work is vital. This chapter discusses the limitations of quantitative empirical research on the gig economy and argues that incorporating more qualitative approaches will help generate a more comprehensive understanding of the tax policy issues involved. Adoption of a diverse set of research approaches is crucial because the administrative tax return and labor survey data are incomplete and are shaped by prior decisions of gig economy firms and participants. Many questions remain that such quantitative data, by its very nature, cannot answer. This chapter first identifies the key tax issues at stake in the gig economy, including tax administration, worker classification, and tax impacts on workforce decisions. It then discusses the key ways in which quantitative approaches do not fully capture the tax issues at stake. Finally, it details how qualitative research methods such as interviews and case studies can flesh out gaps in the quantitative data, can help interpret quantitative data, and can help answer questions that extend beyond the scope of quantitative data, yielding a richer account of gig economy tax issues than that provided by quantitative tax administrative and labor survey data alone.

PENERAPAN BENFORD'S LAW UNTUK MENDETEKSI DUGAAN KETIDAKPATUHAN MATERIAL PADA SPT TAHUNAN PPH ORANG PRIBADI

This study aims to examine whether the Individual Income Tax Return data set conforms to the Benford's Law pattern and to examine whether there are indications of material noncompliance in that data set based on the application of Benford's Law. This research is a quantitative research. The data source in this study is the taxation database owned by the Directorate General of Taxes (DGT), Ministry of Finance. The results of this study indicate that most of the Individual Income Tax Return data set variables conform to Benford's Law pattern and there are indications of material noncompliance in that data set. Tax officer, in this case account representatives and tax auditors are expected to be able to use the results of this study to carry out further analysis of the numerical class in the Individual Income Tax Return data set that is not appropriate and deviates from Benford's Law pattern. DGT, as a tax institution, is expected to consider the use of Benford's Law to assist the taxpayer supervision and inspection process.

Incentives for voluntary health insurance in a national health system: Evidence from Italy

ObjectivesThe paper evaluates the extent to which the government's policy to encourage the purchase of voluntary health insurance (VHI) may have led to income-related horizontal inequity in access to health care in a universal health care system (NHS). MethodsAd hoc tax return data for the universe of Italian taxpayers for years 2009-2016 are used to estimate the tax benefits granted to taxpayers who hold VHI, the redistributive impact, and the public budget effect. The income elasticity of tax benefits is estimated using tax return data and considering some taxpayers’ characteristics (income class, gender, age, and geographic area). Standard inequality indices are computed to assess income-related horizontal inequity in access to health care. ResultsTax incentives, especially those granted to employer-paid health insurance, have a sizeable impact on tax revenue and introduce into the Italian NHS significant income-related horizontal and vertical inequity in access to health care. The results suggest a distributional profile of tax incentives that is highly concentrated in favor of wealthier taxpayers. ConclusionOur analysis adds novel evidence that may contribute to the current debate on whether and to what extent countries in which all citizens have access to free healthcare and equal standards of healthcare services should subsidize VHI, especially when the coverage doubles the healthcare services provided by universal public insurance. We show that VHI reduces tax revenues and introduces disparities among citizens in terms of access to healthcare services.

Entity Structure and Taxes: An Analysis of Embedded Pass-Through Entities

ABSTRACT We examine the effect of pass-through entities embedded in corporate structures on tax avoidance, tax uncertainty, and tax noncompliance using unique, confidential tax return data that link corporations and pass-through entities together through Schedules K-1. We develop measures of the use of pass-through entities such as the number and “connectedness” of pass-throughs within the structure, the presence of loss pass-throughs or asymmetric allocations of such losses, and connections to entities external to the firm. We predict and find that these features are associated with lower effective tax rates, higher current-year additions to tax reserves, and larger amounts of proposed IRS audit adjustments, controlling for probability of audit selection. This large-sample evidence could help the IRS understand how pass-throughs affect compliance and financial statements users anticipate the tax effects related to entity structure. JEL Classifications: H20; H26; L22; M41.

Income tax evasion and audits under common and idiosyncratic shocks

Abstract Common shocks affect the profits of ex ante identical self-employed entrepreneurs. From aggregate tax return data or other industry expertise, the tax collection agency can better estimate the common shock. With three profit realizations, high, medium, or low, it is shown that this information asymmetry results in taxpayers engaging in at most one-step underreporting compared to a maximal two-step underreporting when the agency does not know the common shock. The evasion behavior also varies with profit levels: for high penalties, only high profit earners evade, whereas for moderate penalties, medium profit earners evade more often. In addition, the tax authorities audit low returns more intensively than they do medium returns when the common shock is favorable, and sometimes do not audit at all when the common shock is unfavorable. Finally, when idiosyncratic shocks depend on the abilities of the entrepreneurs, high-ability entrepreneurs will be more prone to underreporting.

Using Tableau to Analyze the Effects of Tax Code Changes: A Teaching Case for Tax and AIS Courses

ABSTRACTThis teaching case enables taxation and accounting information systems (AIS) students to use data analytics software to analyze a large dataset of simulated federal individual income tax returns to identify possible effects of tax changes on different categories of individual taxpayers. Tax return data provided for the case is a large sample that represents the population of U.S. tax returns filed, created from a simulation using distributions based on prevailing economic theories about income and most recent tax return filing statistics available from Internal Revenue Service (IRS) Statistics of Income (SOI). Students will learn to: (1) develop foundational skills and knowledge related to data analytics and how those skills can be used to visualize data to make it more meaningful, (2) demonstrate an understanding of Internal Revenue Code as it pertains to individual taxation, and (3) demonstrate knowledge of how Internal Revenue Code affects different types of filers.

Does Student Loan Debt Hinder Community Well-Being?

How the growth in student debt is impacting the well-being of the larger community is explored using U.S. county level data. Using tax return data from the Internal Revenue Service (IRS) we find that higher levels of student debt tends to be associated with lower levels of community well-being. Specifically, lower rates of home ownership, higher rental market stress, lower rates of entrepreneurship and poorer health behaviors. While the decision to take on student debt is an individual decision, local communities are uniquely positioned to help students make decisions around taking on debt and repayment options.

The Role of Creditor Protection in Lending and Tax Avoidance

We examine how creditor rights affect the trade-off between non-debt and debt tax shields. Using four bankruptcy reforms, a panel of private and public firms, and tax return data from Italy, we show that laws empowering creditors reduce tax avoidance and increase debt financing, consistent with firms substituting non-debt tax shields with debt tax shields. We corroborate the validity of our findings using a panel of public firms across 33 countries. We document that the impact of creditor protection laws is mitigated by tax system characteristics, which significantly reduce the incentives to substitute tax avoidance with debt.

The Association between Board Composition, Board Governance, and Charity Care Provided by Nonprofit Hospitals

ABSTRACT In this study, we examine the association between board composition, board governance, and charity care provided by nonprofit hospitals. Using tax return data, we first investigate whether the composition of nonprofit hospital boards is associated with governing decisions related to patients' eligibility for charity care. Then, we examine whether these decisions are associated with the amount of charity care provided. These research questions are motivated by legislators' and regulators' interest in understanding how nonprofit hospitals behave in terms of charitable missions (Kennedy, Burney, Troyer, and Stroup 2010). Overall, we find percentage of doctors on the board is associated with decisions affecting patients' eligibility for free care. Related, we find that percentage of healthcare administrators on the board is associated with decisions affecting patients' eligibility for free and discounted care. We also find that governing decisions related to patients' eligibility for free and discounted care are associated with charity care provided. Data Availability: Data used in this study are available from the authors upon request.

How Do Taxpayers Respond to Tax Subsidy for Long-Term Savings? Evidence from Thailand's Tax Return Data

This paper uses a panel of personal income tax return data for the population of Thai tax filers to examine how individuals respond to tax subsidy for long-term savings. We utilize the 2013 tax reform that lowered the price subsidy for long-term savings in order to obtain causal identification. Our difference-in-difference analysis illustrates that there is a considerable heterogeneity in the individual responses to the subsidy cut?with middle-income taxpayers responding much greater than their high-income counterparts. Among the middle-income group, we also find that the subsidy reduction has larger effects on decisions of smaller contributors. Finally, we provide some suggestive evidence that taxpayers who are younger, less financially sophisticated and less financially disciplined exhibit stronger responses to the subsidy cut. Our findings shed light on the heterogeneity of individual responses which are crucial for policymakers who consider an incremental change in the existing tax incentive scheme.