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

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Listed:
  • Slemrod, Joel
  • Collins, Brett
  • Hoopes, Jeffrey L.
  • Reck, Daniel
  • Sebastiani, Michael

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.

Suggested Citation

  • Slemrod, Joel & Collins, Brett & Hoopes, Jeffrey L. & Reck, Daniel & Sebastiani, Michael, 2017. "Does credit-card information reporting improve small-business tax compliance?," Journal of Public Economics, Elsevier, vol. 149(C), pages 1-19.
  • Handle: RePEc:eee:pubeco:v:149:y:2017:i:c:p:1-19
    DOI: 10.1016/j.jpubeco.2017.02.010
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Philipp Doerrenberg & Jan Schmitz, 2017. "Tax compliance and information provision. A field experiment with small firms," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 1(1), pages 47-54, February.
    2. Carlo, Fiorio & Alessandro, Santoro, 2017. "Evidence-based threat-of-audit letters: do taxpayers respond strategically in a complex environment?," Working Papers 372, University of Milano-Bicocca, Department of Economics, revised 26 Sep 2017.
    3. Tazhitdinova, Alisa, 2015. "Reducing Evasion Through Self-Reporting: Theory and Evidence from Charitable Contributions," MPRA Paper 81612, University Library of Munich, Germany, revised 2017.
    4. Mascagni, Giulia, 2017. "From the Lab to the Field: A Review of Tax Experiments," Working Papers 13726, Institute of Development Studies, International Centre for Tax and Development.
    5. Mascagni, Giulia, 2016. "From the Lab to the Field: a Review of Tax Experiments," Working Papers 8967, Institute of Development Studies, International Centre for Tax and Development.
    6. Brockmeyer,Anne & Hernandez,Marco, 2016. "Taxation, information, and withholding : evidence from Costa Rica," Policy Research Working Paper Series 7600, The World Bank.
    7. Claudio Agostini & Eduardo Engel & Andrea Repetto & Damian Vergara, 2017. "Individual Tax Planning and Small Business Creation: Evidence on the Impact of Special Tax Regimes in Chile," Working Papers wp_054, Adolfo Ibáñez University, School of Government.

    More about this item

    Keywords

    Tax evasion; Information reporting; Small businesses; Tax enforcement; Administrative data;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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