The Audit Lottery: Don't Ask, Don't Tell?

Abstract:     
The IRS has never audited more than two percent of returns filed. Therefore, as a general matter, whatever one puts in a tax return, there is a 98% chance that one will not get caught. This phenomenon is known as the audit lottery. Under certain conditions, tax advisors should be allowed to discuss the audit lottery with their clients. Even though this information might well persuade some clients to take very aggressive, or perhaps even fraudulent, positions on tax returns, the taxpayer should have a right to know about the audit lottery.

Keywords: taxation, tax evasion, audit lottery, professional responsibility

JEL Classifications: H26

Accepted Paper Series