Does Credit-Card Information Reporting Improve Small-Business Tax Compliance?

57 Pages Posted: 28 Oct 2014 Last revised: 23 Mar 2016

See all articles by Joel B. Slemrod

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Brett Collins

Government of the United States of America - Internal Revenue Service (IRS)

Jeffrey L. Hoopes

University of North Carolina (UNC) at Chapel Hill - Accounting Area

Daniel Reck

London School of Economics & Political Science (LSE)

Michael Sebastiani

Government of the United States of America - Internal Revenue Service (IRS)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2, 2015

Abstract

We investigate the response of small businesses operating as sole proprietorships to Form 1099-K, an information report introduced in 2011 which provides the Internal Revenue Service with information about electronic sales. Theory and distributional analysis isolates affected taxpayers, who report receipts equal to or slightly exceeding the receipts reported on 1099-K. Information reporting made these taxpayers more likely to file a return declaring business income, and increased filers’ reported receipts by up to 24 percent. Taxpayers largely offset increased reported receipts with increased reported expenses, which do not face information reporting, diminishing the impact on reported net taxable income.

Keywords: Tax underreporting, information reporting, small businesses, tax enforcement, administrative data

JEL Classification: H20, H23, H25, H26

Suggested Citation

Slemrod, Joel B. and Collins, Brett and Hoopes, Jeffrey L. and Reck, Daniel and Sebastiani, Michael, Does Credit-Card Information Reporting Improve Small-Business Tax Compliance? (October 2, 2015). Available at SSRN: https://ssrn.com/abstract=2515630 or http://dx.doi.org/10.2139/ssrn.2515630

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Room R5396
Ann Arbor, MI 48109-1234
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734-763-4032 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Brett Collins

Government of the United States of America - Internal Revenue Service (IRS) ( email )

1111 Constitution Avenue, NW
Washington, DC 20224
United States

Jeffrey L. Hoopes (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Accounting Area ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Daniel Reck

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Michael Sebastiani

Government of the United States of America - Internal Revenue Service (IRS) ( email )

1111 Constitution Avenue, NW
Washington, DC 20224
United States

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