Estimating the Extent of Individual Income Tax Filing Noncompliance

• Activity Number: 106 - Administrative Income Data, Survey Data and Inequality
• Type: Invited
• Date/Time: Monday, July 29, 2019 : 8:30 AM to 10:20 AM
• Sponsor: Business and Economic Statistics Section
• Author(s): Alan H Plumley* and Patrck Langetieg and Mark Payne
• Companies: Internal Revenue Service and Internal Revenue Service and Internal Revenue Service
• Keywords: tax; compliance; nonfiling

Abstract

We estimate the extent of individual income tax nonfiling using both administrative data and survey data. The Voluntary Filing Rate (VFR) is the number of required returns filed on time, expressed as a percentage of the total number of required returns. We estimate the VFR from IRS administrative data. The VFR has been fairly stable over time at around 89 percent, with the number of returns filed late or not at all growing gradually from around 13 million to 16 million. The nonfiling gap measures the extent of nonfiling in terms of tax dollars not paid on time. Our estimates are based on two different methodologies—one based primarily on IRS data (the Administrative Data Method), and the other based primarily on Census data matched with a limited amount of IRS data (the Census Method). The Administrative Data Method uses Census data to impute demographics to IRS administrative data, and the Census Method uses IRS administrative data to impute income to Census data. We then averaged the estimates produced by the two methods. We estimate that the average annual individual income tax nonfiling gap over the Tax Year 2008 through Tax Year 2010 period was $26 billion.