The specific indirect effect of IRS audits

Jess Grana (), India Lindsay (), Lucia Lykke (), Max McGill (), Alexander McGlothlin (), Leigh Nicholl () and Alan Plumley ()
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Jess Grana: The MITRE Corporation
India Lindsay: The MITRE Corporation
Lucia Lykke: The MITRE Corporation
Max McGill: The MITRE Corporation
Alexander McGlothlin: The MITRE Corporation
Leigh Nicholl: Indeed, Austin Indeed Tower (HQ)
Alan Plumley: Internal Revenue Service

International Tax and Public Finance, 2025, vol. 32, issue 4, No 3, 995-1029

Abstract: Abstract Tax enforcement actions have a direct revenue effect in the form of tax collected from (or refunded to) the contacted taxpayer. These enforcement actions also have an indirect effect on revenues by inducing a change in the future tax reporting of the contacted taxpayer (the “specific” indirect effect) and of the general population (the “general” indirect effect). This paper provides estimates of the specific indirect effect for five types of IRS audits conducted by mail. We use longitudinal taxpayer data from the IRS on operational audits conducted on tax returns filed during Tax Years 2013–2017. We demonstrate that the specific indirect effect varies by audit category, and that in conjunction with the direct effect, should be used to allocate resources within an audit program. To our knowledge, this is the first study in the U.S. tax enforcement context that explicitly aligns specific indirect effect estimates with actual operational audits to identify how the overall return on enforcement resources may be maximized.

Keywords: Individual income tax; Tax compliance; Tax evasion; Behavioral economics (search for similar items in EconPapers)
JEL-codes: H21 H24 H26 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10797-024-09866-5

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