The Effects of EITC Correspondence Audits on Low-Income Earners

65 Pages Posted: 2 Apr 2018 Last revised: 7 Nov 2021

See all articles by John Guyton

John Guyton

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

Kara Leibel

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

Day Manoli

University of Texas at Austin

Ankur Patel

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Mark Payne

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

Brenda Schafer

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

Date Written: March 2018

Abstract

Each year, the United States Internal Revenue Service identifies taxpayers who may have erroneously claimed Earned Income Tax Credit (EITC) benefits and audits them through a mail correspondence process to verify their claims. This paper exploits the random variation arising from certain aspects of the audit selection process to estimate the impacts of these EITC correspondence audits on taxpayer behaviors. In the years after being audited, taxpayers are less likely to claim EITC benefits, and most of the reduction appears to be in EITC claims that may have been flagged for potential EITC noncompliance. Additionally, qualifying children on audited returns are more likely to be claimed by other taxpayers after the audits. These spillovers indicate that net overpayments may be less than gross overpayments, since ineligible qualifying children on audited returns could potentially be eligible qualifying children on other taxpayers’ returns. Lastly, EITC correspondence audits affect real economic activity, as wage earners experience changes in the likelihood of having wage employment in the years after being audited.

Suggested Citation

Guyton, John and Leibel, Kara and Manoli, Day and Patel, Ankur and Payne, Mark and Schafer, Brenda, The Effects of EITC Correspondence Audits on Low-Income Earners (March 2018). Available at SSRN: https://ssrn.com/abstract=3154247

John Guyton (Contact Author)

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

1111 Constitution Avenue, NW
Washington, DC 20224
United States

Kara Leibel

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

1111 Constitution Avenue, NW
Washington, DC 20224
United States

Day Manoli

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Ankur Patel

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Mark Payne

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

1111 Constitution Avenue, NW
Washington, DC 20224
United States

Brenda Schafer

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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