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It’s Tax Day – Are You Tempted to Cheat on Your Taxes?

Posted on April 15, 2009April 15, 2009 by Doug Cornelius
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no_irs

The American tax system is a good test case for cheating. We know it’s good to pay taxes because the government does lots of good things for us. At the same time, we have a selfish desire to pay as little in taxes as possible.

Our tax returns are self-reporting for our income and characterization of our deductions. We police ourselves, knowing that there are criminal penalties for not reporting income and the threat of an audit. With increasingly computerized reporting systems, the IRS seems to know lots more about our income.

The IRS has three dimensions of tax compliance: filing, payment, and reporting. Filing compliance refers to whether taxpayers filed required returns in a timely manner, or at all. Payment compliance considers whether taxpayers paid their reported tax liability in full on a timely filed return. Reporting compliance addresses the accuracy with which taxpayers report their tax liability to the IRS.

Math errors increased from 2.98% in 1996 to 7.63% in 2002, while under-reporting decreased from 1.23% to 0.86%

Have you finished your taxes? The compliance numbers show that you need to double-check your math.

See:

  • SOI Tax Stats – IRS Tax Compliance Activities

Image is from Wikimedia Commons: No IRS.

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3 thoughts on “It’s Tax Day – Are You Tempted to Cheat on Your Taxes?”

  1. Ohad Reshef says:
    April 15, 2009 at 12:58 pm

    Reminds me of what I read in Freakonomics:
    “Some cheating leaves barely a shadow of evidence. In other cases, the evidence is massive. Consider what happened one spring evening at midnight in 1987: seven million American children suddenly disappeared. The worst kidnapping wave in history? Hardly. It was the night of April 15, and the Internal Revenue Service had just changed a rule. Instead of merely listing each dependent child, tax filers were now required to provide a Social Security number for each child. Suddenly, seven million children – children who had existed only as phantom exemptions on the previous year’s 1040 forms – vanished, representing about one in ten of all dependent children in the United States.”

    Reply
    1. Doug Cornelius says:
      April 15, 2009 at 1:22 pm

      I had forgotten about that chapter of Freakonomics.

      That is certainly one of the aspect to compliance, trying to set up systems so it is harder to cheat without getting caught.

      Reply
  2. Pingback: Business Ethics Training It=92s Tax Day - Are You Tempted to Cheat on Your Taxes … «

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