IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Tax Basis Determinations, Pass-Through Entities, and Taxpayer Noncompliance

Listed author(s):
  • James Alm

    ()

    (Department of Economics, Tulane University)

  • Jay A. Soled

    ()

    (Rutgers School of Business, Rutgers University)

In the United States, one of the most popular ways to conduct business is to use a pass- through entity such as a partnership, limited liability company, or S corporation. Investor taxpayers in such pass-through entities commonly hold their ownership interest for years or decades. Over this lengthy period of time, a taxpayer's tax basis in the entity is subject to constant annual adjustments, which generally have no immediate tax consequences. However, when the pass-through entity investment is later sold or liquidated, tax basis determinations are of critical importance, and these determinations enable taxpayers to calculate their concomitant gains or losses. At this pivotal juncture, accurately determining taxpayers' tax bases in these investments is highly unlikely, and the IRS's ability to detect taxpayers' tax basis reporting inaccuracies is virtually nonexistent. This analysis examines the phenomenon of taxpayers who do not know their tax basis in pass-through entity investments and the consequences associated with such ignorance. Also provided are projected revenue losses associated with taxpayers purposefully or inadvertently inflating the tax basis that they have in their pass-through entity investments. To curtail the projected revenue losses associated with tax basis misreporting, we propose several reform measures that Congress should adopt. Such measures include simplifying tax basis computations, enhancing information reporting, and limiting the ability of taxpayers to estimate the tax basis of their pass-through investments.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://econ.tulane.edu/RePEc/pdf/tul1407.pdf
File Function: First Version, July 2014
Download Restriction: no

Paper provided by Tulane University, Department of Economics in its series Working Papers with number 1407.

as
in new window

Length:
Date of creation: Jul 2014
Handle: RePEc:tul:wpaper:1407
Contact details of provider: Postal:
206 Tilton Hall, New Orleans, LA 70118

Phone: (504) 865-5321
Fax: (504) 865-5869
Web page: http://econ.tulane.edu

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:tul:wpaper:1407. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rodrigo Aranda Balcazar)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.