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The specific indirect effect of IRS audits

Author

Listed:
  • 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)

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.

Suggested Citation

  • Jess Grana & India Lindsay & Lucia Lykke & Max McGill & Alexander McGlothlin & Leigh Nicholl & Alan Plumley, 2025. "The specific indirect effect of IRS audits," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 32(4), pages 995-1029, August.
    • Handle: RePEc:kap:itaxpf:v:32:y:2025:i:4:d:10.1007_s10797-024-09866-5
    DOI: 10.1007/s10797-024-09866-5
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    References listed on IDEAS

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    1. William C Boning & Nathaniel Hendren & Ben Sprung-Keyser & Ellen Stuart, 2025. "A Welfare Analysis of Tax Audits Across the Income Distribution," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 140(1), pages 63-112.
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    7. Henrik Jacobsen Kleven & Martin B. Knudsen & Claus Thustrup Kreiner & Søren Pedersen & Emmanuel Saez, 2011. "Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark," Econometrica, Econometric Society, vol. 79(3), pages 651-692, May.
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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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