Does Credit-Card Information Reporting Improve Small-Business Tax Compliance?
57 Pages Posted: 28 Oct 2014 Last revised: 23 Mar 2016
Date Written: October 2, 2015
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
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