The IRS lags behind in this area. For example, some IRS computers still run on an operating system that is so outdated Microsoft no longer services it; the IRS had to spend scarce funds to set up custom support. Kennedy was President. This compromises the stability and reliability of our information systems, and leaves us open to more system failures and potential security breaches.
Identity theft continues to present a major challenge for the IRS, making IT investments all the more critical. Restoring IRS funding to a more adequate level is important both to reverse the decline in taxpayer service and enable the agency to handle its growing responsibilities in areas such as identity theft and health reform.
But Congress has failed to provide the IRS with any funds to implement health reform, forcing the agency to divert funds from other areas, such as IT. Enacted in , FATCA seeks to reduce illegal tax evasion by requiring filers and financial institutions to report more information to the IRS about assets held in offshore accounts. In addition, the number of tax filers continues growing. The number of individual income tax returns has grown by more than 9 million 7 percent since In , IRS funding was no higher than in after adjusting for inflation, but the number of returns filed was 30 million 23 percent higher.
Congress authorized a modest nominal increase in IRS funding for fiscal year , though funding was flat in inflation-adjusted terms. There is an urgent need for Congress to quickly and substantially build on the small funding step for The added funding would support specific initiatives such as:. Policymakers should give the IRS sufficient resources to carry out its mission.
Caplan, Sheldon S. Cohen, Lawrence B. Gibbs, Fred T. Goldberg, Jr. Peterson, Margaret M. Richardson, and Charles O. However, ROI for specific enforcement activities is substantially higher.
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Boustany, Jr. Koskinen, hearing before the Senate Finance Committee, February 10, Figure 1. Figure 2. Figure 3. Figure 4. Figure 5. PDF of this report 10pp. More on this topic June 19, June 1, April 1, More from the Authors. Chuck Marr. Areas of Expertise:. Federal Budget. Observation of naturally occurring behaviour has been used extensively in the social sciences for an example of ethnographic observation of tax audits, see Boll We chose the virtual ethnographic approach given several advantages it presents.
People often discuss online with a high degree of self-disclosure, including sensitive topics, particularly when they address those they feel connected to e. Third, online communication is less hierarchical and may thus allow more freedom of expression than traditional research settings that place the researcher in an expert position for overviews, see Hine ; Kozinets The dataset analysed consists of over user comments about tax on discussions forums for self-employed professionals in the UK.
The dataset comprises conversations on these forums: a forum user asks a question or raises an issue related to tax which is followed by other users replying, debating, advising, sharing their own experience, etc. This particular data collection strategy was preferred for several reasons. First, we focused on general forums rather than those specialised on tax issues because we aimed to collect conversations relevant to people who have no expertise or keen interest in taxation. Second, we chose to focus on self-employed individuals, as they represent a relatively simple case for understanding tax compliance.
This contrasts with taxation in small or even medium-sized businesses where decisions are more complex, often being distributed among directors, involving a larger number of taxes, etc. Mitigating factors such as reputation loss and the influence of norms take on a different hue when considering more formal organisations for studies of organisational compliance see, for example, Edelman and Talesh ; Parker Third, we chose online discussion forums as opposed to other social media because discussions on these forums tend to be more elaborate than those usually posted on social networking sites, allowing more depth to the analysis.
We chose to focus on the UK rather than include more countries because narrowing the focus allowed a more comprehensive data collection strategy. Although we do not make any claims regarding how representative the comments collected are for all discussions about tax among UK self-employed professionals, we have endeavoured to select the most prominent forums for a range of occupations, and included all comments about tax on those forums. Most of the comments included in the analysis were collected on a general discussion forum for freelancers, but we also aimed to include specialised forums for particular professions those included here are forums for artists, designers, construction industry professionals, nurses, doctors, beauticians and hairdressers, and IT contractors.
The selection of these groups, however, is not intended to imply that behaviour in these groups is different from the wider population. Data were collected in late —early , but some of the comments were posted as early as , although most were much more recent. All the information collected is publicly available, and did not require the researcher to register as a forum user in order to access it.
To analyse the conversations, we employed thematic analysis Braun and Clarke Considered the most widely used qualitative analysis method, thematic analysis provides a systematic approach to extract meaning from text data Braun and Clarke We used qualitative analysis software NVivo , and began by open-coding all the comments in the dataset i.
This process allowed the creation of a set of categories that were further refined, that is, similar themes were merged, or large and heterogeneous themes were split into sub-themes. This iterative process of refining categories while ensuring they are true to the underlying data ultimately produced a number of themes that presents our interpretation of all the data collected.
We begin by discussing the themes that emerged from our data analysis, and follow this presentation with a discussion of the broad assumptions in the tax compliance literature we identified in the introduction—whether and how these assumptions are reflected in naturally occurring discussions among taxpayers. The model presented in Fig. In the process of dealing with his or her tax affairs, the taxpayer deals with 1 the laws and regulations relating to tax compliance, 2 the tax authority, 3 tax practitioners, and 4 the wider social network of the taxpayer for example, co-workers, members of the same professional group, family and friends, etc.
Each data point represents a contribution by a forum member. As such, each contribution may refer to several themes and be coded simultaneously as part of multiple categories. Can you guys give ANY advice on the matter or refer me to any books or articles. I began reading some tax documents but my brain went into meltdown. Is there any import duty?
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The [tax authority] website is so complicated, I could not find any information relating to small items of equipment. How much you have to pay the taxman is irrelevant, not declaring income is a crime, whether for millions or pennies. You have to register as sole trader self-employed so that you can claim expenses. As outlined above, a large number of comments refer to the general rules of paying tax, typically income tax.
A different category of comments about laws and rules discusses potential exemptions and ways of using existing rules to pay less tax. You have to register as sole trader in order to claim expenses. What is the optimal way to sort out my TAX? Invoice to job agency for my contract jobs from my Company […] 2. Register as employee with job agent […] 3. Any other way? I just wondered whether artists need to pay tax on work they sell, if so are there good ways to avoid it apart from not declaring income , as I know you agree we seem pay tax on pretty much everything.
Thinking if there is any clause whereby I can avoid paying as much tax hope! A significant number of comments mention the tax authority. We categorised three ways that taxpayers talk about the tax authority: 1 as a source of expertise about laws and regulations; 2 as an arbiter that people can contact to validate their interpretation of existing rules; and 3 as a subjective law enforcer in relation to which they manage their image as compliant taxpayers. They were fantastically helpful. No, seriously, logically thinking it should be fine but the cynicism of the taxman should not be underestimated.
Oh, in that case, I would get it confirmed in writing [from the tax authority] if I were you. Also, consider the sum of the claim versus your total self-employment income or expenses. Then, when they get back to you I would be honest with them, […]. My first year as a freelancer just ended and I made no profit.
BUT it is not legal accounting advice. If in doubt, get some proper advice. Even a small local accountant might give you a consultation cheaply. This is assuming that your accountant does his job properly. Taxpayers share information specific to their network, share own experiences and advice about how to best deal with taxes, and may also try to influence other taxpayers to be compliant, and generally offer support to those who feel anxious.
I guess I should go and talk to the tax office nearer the time but I wanted to speak to other artists first and see what they do. If you are not paying tax, as you previously said, then it is only a matter of time before they get to you and recover what is owed. He needs to deal with it [sort out his tax affairs]. Once the weight is lifted off his shoulders he will feel much better. I am sure that it happens a lot. Their chief concern is to make sure they are compliant, rather than to understand how to evade taxes. Regarding all taxpayers as potential evaders has been described as a bias in the tax behaviour literature Kirchler The focus on tax compliance decisions is also reflected by the few studies that look at tax communication, which propose that taxpayers who talk about tax exchange information about ways to evade tax and avoid detection Stalans et al.
While we accept that taxpayers may communicate about these topics, our dataset suggests that their overwhelming concern is to make sense of the rules of tax compliance in order to make sure they are compliant, rather than request information that will help them evade without detection or penalty.
Our dataset suggests that the acquisition of tax knowledge is more central than the compliance decision to the tax behaviour of the majority of taxpayers—a majority who are motivated to be compliant and not concerned with ways to evade taxes. Our findings suggest that the majority of taxpayers are compliant; this conclusion echoes wider debates regarding business ethics. An increasing number of authors suggest that the ethical behaviour of business leaders cannot be fully understood through the lens of a rational actor maximising her or his own utility—this leads to an underestimation of ethical behaviour.
Instead, many business leaders are driven by ethical principles and values e. Bazerman and Tenbrunsel ; Gentile ; Messick and Bazerman , although they may possess or report an inflated sense of their own ethics Randall and Fernandes Compliance is not a binary variable In relation to the compliance decision, the tax compliance literature has widely regarded tax compliance as a binary variable with two potential outcomes: compliant and noncompliant Kirchler and Wahl ; McBarnet, Considering compliance as a binary decision has important advantages for its measurement; however, compliance behaviour is in reality much more complex than a decision between evasion and full compliance Braithwaite As discussed above, compliance in our dataset takes a number of forms, including finding ways to drastically minimise tax liability while complying with the law.
In this respect, our dataset echoes other authors in that compliance and noncompliance can take many qualitatively different forms and that studying taxpaying decisions as a binary choice between compliance and evasion does not reflect the complex reality of behaviour e. Braithwaite ; Kirchler and Wahl Not only does compliance take many forms, tax evasion is also much less clear in reality than the way it is measured in tax experiments.
As such, assigning to a taxpayer who has filled in a tax return the intention to evade may constitute a subjective decision of tax inspectors Boll This concern with the subjectivity of tax evasion judgements is apparent in the online discussions, where people comment on how to make sure honest mistakes are not interpreted as intentional evasion by tax inspectors.
It becomes apparent that research looking at compliance as a binary outcome full compliance versus evasion may lack relevance for the way that compliance plays out in reality, in its many forms shaped by the interaction of taxpayers, tax practitioners, and the tax authority. We hope that future research addresses this gap by looking at the many forms of compliance, including tax avoidance, and also looking at distinguishing between honest error and evasion intention.
Although there has been some interest in the role of tax practitioners Gracia and Oats ; Hite and Hasseldine ; Roberts ; Stephenson and taxpayer social networks e. Beers et al. The largest risk if you don't declare fully is that the tax office will calculate your liability based on similar businesses and issue you with the bill plus fines.
It depends on the risk you want to take! While there is much debate about tax risk management in the context of large business taxpayers see, for example, Lavermicocca ; Mulligan and Oats , there is no research dealing with this aspect of individual compliance. Importantly, although some people mention penalties in general as deterrent, only one instance discusses the actual penalty level, and this is a late-filing penalty. Any artists who know the answer?
How do you enter equipment in your accounts? Although we cannot tell from analysing the comments whether discussions about current norms in the profession influence behaviour, these types of norms are most likely to influence people when tax rules are ambiguous Cialdini and Trost The influence of social norms in the profession on compliance relates more widely to organisational ethical behaviour, where compliance with organisational rules of conduct and the law is chiefly influenced by the existence and promotion of an ethical culture in organisations National Business Ethics Survey ; see also Parker Our study introduces the analysis of naturally occurring online discussions to the study of tax behaviour.
We set out to explore discussions about tax among freelancers and small business owners. Several actors play an important role—the tax authority, tax practitioners, and the wider social network of the taxpayer. Our analysis highlights several ways in which taxpayers relate to their tax obligations. First, taxpayers seek to make sense of existing regulations. In this sense-making process, the tax authority, tax practitioners, and the wider social networks all play an important role.
Second, and perhaps more interesting, taxpayers seek to negotiate compliance boundaries. Many taxpayers seek to understand the various ways of being compliant and choose that which is most efficient for their business. In this process, they rely on their social network to seek out all the alternatives available to them and they rely on the tax authority to arbitrate whether their arrangements are in line with regulations.
They also seek out existing norms and practices in their relevant groups e.
Taxpayers do not only negotiate being compliant by the way they organise their tax affairs but also by managing their image as honest taxpayers in relation to the tax authority. A small number of the taxpayers in our dataset display noncompliant stances and seek approval in their social network. Further to helping taxpayers understand and negotiate tax regulations, the wider social network also performs other functions: providing general best practice advice in relation to dealing with tax obligations, persuading defiant taxpayers to become compliant, and general social support.
Some of the processes highlighted above have been addressed by past research, such as the acquisition of tax knowledge e. Alm et al. However, other processes have received less attention. For instance, the fact that taxpayers discuss ways to appear honest so that they are not considered noncompliant highlights the way that compliance is negotiated in the relationship between the taxpayers and the tax inspector see also Boll In addition, compliance is influenced by the social network, as taxpayers seek to influence and persuade other taxpayers to comply with regulations see also Onu and Oats b.
The analysis also stresses the various ways in which taxpayers negotiate compliance based on information received from practitioners, tax authority, and the wider social network. Compliance is not clear-cut and a priori defined; it is negotiated in an environment of existing norms and practices see also Gracia and Oats This conclusion is not only relevant to tax compliance, but highlights more broadly that ethical business behaviour is not only guided by abstract regulations, but it is also socially situated and negotiated between various actors e.
Our primary finding is that most taxpayers seem to be unconcerned with the compliance decision; they are motivated to comply and their main concern is to seek information about how to be compliant. However, the focus of the literature on tax behaviour has overwhelmingly been on tax compliance decisions for a review, see Kirchler We do not aim to question the validity of research into tax compliance decisions, but rather to question whether taking a compliance decision is relevant to most taxpayers.
When compliance is actually discussed, it appears far from a straight-forward binary decision between full compliance and evasion. People may be motivated to be compliant but may misunderstand their obligations or make errors; although they may have not had the intention to evade, they discuss the subjective nature of judgements made by tax inspectors regarding their intentions. People also discuss ways to minimise their tax liability, including practices that could be considered tax avoidance. Our analysis of comments not only suggests that most taxpayers are concerned with being compliant, but that there are many qualitatively different forms of compliance.
For the most part, the tax compliance literature has focused on the dichotomy between compliance and evasion. We also looked at whether people are concerned with finding out about audits and penalties, or social norms regarding evasion, as suggested by the compliance literature see Allingham and Sandmo ; and Wenzel , respectively. We found little evidence of people being concerned with finding out about audit probabilities or penalty levels. There was also little evidence of people discussing their approval or disapproval i.
However, some people did discuss what others do descriptive norm, Bobek et al. These findings are indicative of the fact that the wider social environment can have a positive effect on business ethical decisions Christie et al.
It is important to note that our conclusion does not aim to question the validity of previous research on the effect of deterrence factors on tax behaviour on those people who do indeed consider evading, but to question whether many people consider evasion at all. Our aim is thus to question the focus of research on tax behaviour on evasion decisions and propose that other topics may be essential to understanding the experience of the majority of compliant taxpayers.
Also, a deeper understanding of the different manifestations of compliance is desirable to focusing on the dichotomy of compliance—evasion. The focus of research on tax behaviour has important practical implications for informing tax authority activities. However, the academic focus on deterring evasion will bring little contribution to all those areas of tax administration that affect the large majority of compliant taxpayers, areas such as educating people about their tax obligations, making sure they are confident enough to approach authorities, that they find it easy to comply.
Although our analysis has dealt with the compliance of individuals, similar analyses of online discussions may be helpful to understand attitudes and opinions related to the tax compliance of large taxpayers see, for example, Christians ; Datt This limitation is common to all other studies of tax compliance that rely on self-report, such as those employing interviews, large-scale surveys, or experiments where compliance behaviour is observed; given that tax evasion is often perceived as immoral and illegal, people are reluctant to admit to noncompliance to peers or to a researcher.
Despite this limitation, self-reports are central to tax compliance research and many seminal works in the field rely on self-report measures. Although our study employs self-report, we use naturally occurring discussion among peers, which often provide more accurate reflections of actual behaviour than self-reports given in interviews or surveys because they avoid the researcher biasing responses Wetherell et al.
It is also important to note that we do not aim to provide conclusions that are representative of all taxpayers. Our dataset is limited to self-employed professionals and owners of very small businesses, who carry out their business in the UK and who are accustomed to interacting in an online environment. Nonetheless, it is likely that the content of communications about tax between these professionals is similar to those like them operating in other countries, or discussing tax in other types of public fora. People who run more established businesses or those with particular knowledge of tax may display different behaviour.
The forums selected in our dataset are large and reputable online communities. It may be that in more private settings such as face-to-face communication or online communication in smaller private groups , people may be more likely to discuss noncompliance decisions rather than seek information about how to comply, but having no access to such private discussions it is difficult to assess to what extent this is true. Overall, despite the limitations inherent in analysing public self-report data, we believe that the current study is valuable in offering an in-depth exploration of naturally occurring discussions.
We hope other researchers will seek to analyse naturally occurring data to investigate tax behaviour and business ethical decisions more generally. The online environment provides vast opportunities for collecting such data through the use of social media sites, forums, news websites and user comments sections, blogs, etc. Equally, more traditional sources can be included, such as transcripts of boardroom discussions, media programme transcripts, letters to editors of news outlets, and others. The great advantage of such data is that they are produced with no interference from the researcher, not having been elicited by survey questions or an experimental design, and provide the opportunity to explore the topics that are most important and relevant to the people we study.
Skip to main content Skip to sections. Advertisement Hide. Download PDF. Open Access. First Online: 19 February Introduction Whether you can observe a thing or not depends on the theory which you use. Data Collection The dataset analysed consists of over user comments about tax on discussions forums for self-employed professionals in the UK. Thematic Analysis To analyse the conversations, we employed thematic analysis Braun and Clarke Model and Findings The results provide an overview of the content of discussions analysed.
Following presentation of the model, we discuss each theme in detail, providing quotations from the dataset to illustrate each of the themes quotations have been paraphrased in order to maintain confidentiality. Open image in new window. One of the main concerns of taxpayers interacting on the online forums was to make sense of laws and regulations, receive uncomplicated explanations from other forum users and understand which rules apply to their particular situation.
Others who are generally familiar with basic taxpaying rules may use online discussions to determine whether all general rules apply to their circumstances, or if they can make use of exemptions or even set up business structures that are tax-effective. Therefore, our dataset showed two main distinct ways for taxpayers to approach laws and regulations: 1 making sense of existing rules; or 2 negotiating the legal landscape by understanding if rules apply to their circumstance and how to follow rules that are in their favour.
We briefly discuss these two types of approaching rules below. Many of the online discussions analysed began with a user requesting advice in making sense of tax rules, as illustrated by the comments below: 1. Many comments stress that they find tax complicated, and the general information provided by the tax authority or by accountants, confusing.
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Taxes are one of the things that give us headaches. As such, a large number of comments are dedicated to laying out the rules in simple terms, sometimes discussing and debating the accuracy of information presented. The sense-making process does not only involve finding out what the rules are, but understanding the logic behind the rules. Such sense-making in which people learn that rules are consistent with what they perceive to be acceptable standards of behaviour is likely to increase compliance Paine The simplest of cases refers to discussing exemptions e.
Other discussions refer to the most advantageous ways to save tax, for instance, by making sure all potential work-related expenses are claimed, as illustrated below: You have to register as sole trader in order to claim expenses. Or, as shown in the example below, finding the most tax-efficient business structure: What is the optimal way to sort out my TAX?
The instances where people attempt to find ways to be more tax-efficient are placed on a continuum from the most common-place practices e. The tax authority is talked about as a source of knowledge about tax laws and regulations; for the most part, people report positive experiences receiving expertise and guidance from the tax authority, and encourage others to seek assistance. When regulations are unclear or taxpayers feel these can be interpreted in a number of ways, they also relate to the tax authority as an arbiter that can rule whether it regards a certain practice as compliant or noncompliant, such as in the example below: 1.
It should be noted that although a significant number of comments mention accountants and tax practitioners, many of these question the need for self-employed individuals to employ the service of an accountant. This second comment reflects the fragility of advice in this arena; it is not actually correct. Of those that stress the need for an accountant, however, the primary relationship with the taxpayer is to provide guidance , both in understanding the law and in finding tax savings. As outlined above, most comments refer to tax rules.
However, there is an important aspect of how rules are communicated in specific social groups, such as the occupational group. Many taxpayers want to receive information from those in the same occupation and to follow the practice of the occupation—this denotes a role for the norms in the professional group for tax compliance. Through interacting with others, taxpayers do not just learn about tax laws, but receive advice from those more experienced, for example, how to keep track of their expenses, how to find a suitable accountant, and so on. Finally, social networks serve as support through the often stressful taxpaying process, as illustrated by the comment below.
We set out with the intention to see whether and how our findings match the broad assumptions researchers often make in the tax compliance literature. As outlined in the introductory section, we are not the first to question these assumptions, but we attempt to provide empirical support based on analysing naturally occurring data. We discuss below our findings in relation to each assumption in turn.
Taxpayers are seldom concerned with audit rates and penalty levels Given the classic model of tax compliance decisions based on appraisals of audit probability and penalty levels Allingham and Sandmo , we would expect high concern in the online discussions with these variables. While audits and penalties may be of interest to taxpayers, they are usually unknown; tax authorities do not usually disclose the number of audits carried out, and while penalty levels are public, they are unknown to many taxpayers Barham and Fox As such, in order to estimate the likelihood of audits, people may seek information about recent audits in their social network Hashimzade et al.
If penalty levels and audit likelihoods were essential to tax behaviour, we would expect people to also seek information online from peers about audits and penalties. Only a very small number are concerned with the cost-benefit analysis of evasion: It depends on the risk you want to take! Alternatively, some taxpayers base their decisions on social norms An alternative to the view that people comply due to existing deterrents is that people comply due to existing norms against evasion, being motivated to conform to what other people like themselves do Onu and Oats a ; Wenzel People may be influenced by a multitude of norms, such as national norms, family norms, workplace norms, etc.
Since we sourced data from discussion forums for particular professions, the most relevant norms are those in the professional groups e. A number of comments in the dataset refer to the professional group as relevant for tax behaviour, in particular as a source of specialised knowledge about practice in the profession Ashby et al. Adams, C.
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Journal of Economic Psychology, 22 2 , — CrossRef Google Scholar. Allingham, M. Income tax evasion: A theoretical analysis. Journal of Public Economics, 1 , — Alm, J.
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Taxpayer information assistance services and tax compliance behavior. Journal of Economic Psychology, 31 4 , — Changing the social norm of tax compliance by voting.