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Does credit-card information reporting improve small-business tax compliance?

Slemrod, Joel, Collins, Brett, Hoopes, Jeffrey L., Reck, Daniel and Sebastiani, Michael (2017) Does credit-card information reporting improve small-business tax compliance? Journal of Public Economics, 149. pp. 1-19. ISSN 0047-2727

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Identification Number: 10.1016/j.jpubeco.2017.02.010

Abstract

We investigate the response of small businesses operating as sole proprietorships to Form 1099-K, an information report introduced in 2011 which provides the Internal Revenue Service with information about electronic sales (e.g., credit card sales). The overall impact of the policy appears to be relatively small. However, theory and distributional analysis isolates a subset of taxpayers expected to be especially sensitive to reporting, who report receipts equal to or slightly exceeding the receipts reported on 1099-K. Among this set of taxpayers, information reporting induced more complete tax reporting–30% of sensitive taxpayers filed a return declaring business income for the first time, and among those that were already filing, we estimate an increase in reported receipts by up to 24%. These taxpayers largely offset increased reported receipts with increased reported expenses, which do not face information reporting, diminishing the impact on reported net taxable income.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/journal-of-p...
Additional Information: © 2017 Elsevier B.V.
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
JEL classification: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion
Sets: Departments > Economics
Date Deposited: 05 Jun 2018 13:54
Last Modified: 31 Jul 2019 10:15
URI: http://eprints.lse.ac.uk/id/eprint/88183

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