Taxpayer Behavior under Audit Certainty

50 Pages Posted: 23 May 2015 Last revised: 16 Jun 2017

See all articles by Benjamin C. Ayers

Benjamin C. Ayers

University of Georgia

Jeri K. Seidman

University of Virginia - McIntire School of Commerce

Erin Towery

University of Georgia

Date Written: June 15, 2017

Abstract

This study uses a confidential dataset of firms assigned to the Internal Revenue Service (IRS)’s Coordinated Industry Case (CIC) program to examine the effect of audit certainty on firms’ tax reporting behavior. We first model the determinants of assignment to the program. Though the ability and incentive to avoid taxes are related to CIC assignment, we find that the IRS assigns firms primarily based on size and complexity. We then test whether audit certainty has a significant effect on tax payments. Our results show that tax payments do not change when firms enter the CIC program, suggesting the CIC program does not have significant deterrence or enforcement effects relative to the IRS’s standard selection and audit process for large corporations not included in the CIC program. However, supplemental analysis suggests that audit certainty does alter managers’ expectations regarding future tax payments. Our paper provides new empirical evidence on the strategic game between the taxpayer and the tax authority and has important implications for tax authorities as they consider the costs and benefits of certain audit programs.

Keywords: Tax examination; Internal Revenue Service; Coordinated Industry Case program; Tax avoidance

JEL Classification: H25; M20; M41

Suggested Citation

Ayers, Benjamin C. and Seidman, Jeri K. and Towery, Erin, Taxpayer Behavior under Audit Certainty (June 15, 2017). Available at SSRN: https://ssrn.com/abstract=2609134 or http://dx.doi.org/10.2139/ssrn.2609134

Benjamin C. Ayers

University of Georgia ( email )

Athens, GA 30602
United States
706-542-3772 (Phone)
706-542-3630 (Fax)

Jeri K. Seidman (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Erin Towery

University of Georgia ( email )

Terry College of Business
Athens, GA 30602-6254
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
301
Abstract Views
1,211
rank
102,158
PlumX Metrics