Advances in Nonfiling Measure.ppt by malj

VIEWS: 14 PAGES: 16

									Advances in Nonfiling Measures
   Presentation to the IRS-TPC Research Conference
                                         June 21, 2012

       Mark Payne – RAS:OR: Taxpayer Analysis & Modeling
       Alan Plumley – RAS: Office of Research
       Brian Erard – B. Erard & Associates

Note: The views expressed herein are those of the authors and are not necessarily the official 
positions of the U.S. Treasury Department or the Internal Revenue Service.
Office of
Research

            Nonfiling Measures

       <    Two main measures related to Nonfiling:
            · Nonfiling Gap ($)
            · Voluntary Filing Rate (% of returns)
       <    Nonfiling Gap definition: Tax not paid on time by those
            who don’t file on time or don’t file at all.
       <    Measure of the No-Return portion of Non-Filing Gap was
            presented at 2011 IRS research conference.
            · Use IRS administrative data (especially information returns)
            · Use information from the Current Population Survey (CPS) on
              living arrangements and family structures
            · Construct synthetic tax returns for persons not found on a tax return
              and estimate their tax liability and balance due
                                                                                      2
Office of
Research

            Non-Filing Gap Estimation
       < No-Return  Population (TY2005 tax liability
         minus withholding): $12.9B
       < Late Returns
            · Reported $8.7B balance due
            · Add income from information documents
            · Recompute tax and balance due ($13.0B)
       < Total    Nonfiling Gap (No-Return + Late group)
            · For TY2005: $12.9B + $13.0B = $25.9B
            · Projection to TY2006 (reflecting decline in
              number of nonfilers): $25 B
                                                            3
Office of
Research

            Voluntary Filing Rate

       < History: Originated in the mid-1990s to examine factors that
            influence individual income tax filing compliance
       < Definition:
                         Number of Required Returns Filed on Time
               VFR =
                        Total Number of Returns Required to be Filed

       < Data:
            · Numerator: Tax return data for the population on Compliance
              Data Warehouse
            · Denominator: Current Population Survey (CPS) from
              Census/Bureau of Labor Statistics

                                                                            4
Office of
Research

            Key Methodological Issues
       < Who     is required to file? (thresholds based on gross
            income but definition of gross income not clear)
       < Make     numerator and denominator as comparable
            as possible given limitations of the data. Same
            population and same definition of required to file
       < Cope     with changes over time in definition. (e.g.
            Social Security income included in gross income
            1984-1994 and since 2008 but excluded 1995-2007)



                                                                   5
Office of
Research

            Adjustments to the Numerator

       < Restrict   to U.S. residents > age 14 (to correspond with Census)
       < Include    only timely filers who file within 1 year of
            close of tax year (omits some combat extensions)
       < Apply     definition of required to file from instructions
            using best approximation

       < Use    gross income concept for each income type when
            possible (e.g. for Schedule C use line 7 “Gross
            Income” before subtracting out expenses and do not
            reduce taxpayer total income by any loss on line 7)
                                                                             6
Office of
Research

            Adjustments to the Denominator

       < Apply     different factors to convert net business income
            to gross income
            · When net income ≤ 0
            · When 0 < net income < $433
            · When net income > $433 (always required to file)
       < Applied       definition of required to file to CPS as best as
            possible
       < Imputed     additional pension, Social Security, and sole
            proprietor income to the CPS records to account for
            known understatements
       < Adjusted    denominator to reflect income types not in
            CPS (e.g. capital gains, state and local tax refunds)
                                                                          7
Office of
Research
            Social Security Income Reported 
            on 1099 SSA-RRB vs. CPS, TY2010

                                    CPS       1099-SSA
                           N      44,515,485 51,308,568
                           Mean      $2,349      $2,701




                                                          8
Office of
Research
            Pension Income Reported on 
            1099-R vs. CPS, TY2010

                                   CPS         1099-R
                          N      21,115,560   47,265,856
                          Mean      $1,592       $4,850




                                                           9
Office of
Research
            Self-Employment Income:  
            IRTF vs. CPS,TY 2010

                                          Net 
                                        Income      CPS         IRTF
                                            <$0    477,514     7,249,000
                                  N     $1-$433    938,716     1,471,000
                                         >$433    9,556,704   18,999,000
                                           <$0      -$5,121     -$19,530
                                 Mean   $1-$433        $57         $212
                                         >$433     $36,235      $40,229




                                                                           10
Office of
Research

            Imputation of Income to CPS
       <    Pension and Social Security income
            · Estimated receipt of these income types using a bivariate probit model
              and income amounts with a seemingly unrelated regression model
              based on information documents
            · Independent variables: age, gender, region, citizenship and amounts for
              wages, interest, and unemployment compensation
            · Applied estimates to CPS records
       <    Self-Employment Income
            · Used an ordered probit model to estimate whether income received and
              in what amount category (negative, $0-$433, or over $433) and then
              separately modeled the magnitude in each category
            · Independent variables: age, gender, filing status, region, number of
              dependents and amounts for wages, interest, and unemployment
              compensation
            · Applied estimates to CPS records
            · Still clearly a lower bound on this income
                                                                                        11
Office of
Research

             Impact of Imputations

            Estimated Number of Required Returns, CPS (millions)
                                                             2007    2008    2009

            Without imputing any income to CPS               114.8   114.1   112.1

             Increment from imputing only Social Security 
                                                               4.4     4.2     5.1
               and pension income
             Increment from imputing only self-employment 
                                                               3.6     4.7     5.2
               income

             Number double-counted in the two increments      -0.5     0.0    -0.5

            Total after all imputations                      122.3   123.0   122.0




                                                                                     12
             Accounting for Income Not
Office of
Research



             Reflected in CPS
       < Used   IRTF data for timely and late filers to estimate
            number of required returns with and without:
            · Capital gains & losses (and other gains/losses)
            · State & local tax refunds
            · Royalties and miscellaneous other Schedule E income
       < Computed the “delta” and added              this to denominator
         (a lower bound on impact of this income).
       < Checked     this method for self-employment income,
            but imputation method worked better.


                                                                           13
Office of
Research

            Estimated VFR Trend




                                  14
Office of
Research

            Reasons for Fluctuations
                                          Required Returns (Millions)
            Year     Denominator        Numerator       Change in  Change in  Number of    VFR
                   (Total Required)   (Timely Filed) Denominator Numerator Nonfilers
            1999         112.6             105.4                                  7.2      93.6
            2000         115.4             107.4             2.8        2.0       8.1      93.0
            2001         116.1             107.8             0.7        0.4       8.3      92.8
            2002         116.3             106.9             0.2       -0.9       9.4      91.9
            2003         116.5             106.7             0.2       -0.2       9.8      91.6
            2004         118.7             108.2             2.2        1.5      10.5      91.2
            2005         121.4             110.1             2.7        1.9      11.3      90.7
            2006         122.6             112.9             1.2        2.8       9.6      92.1
            2007         123.3             117.0             0.7        4.1       6.3      94.9
            2008         123.5             116.1             0.2       -0.9       7.3      94.1
            2009         122.3             113.2            -1.2       -2.9       9.0      92.6

       <    2006: The Credit for Federal Telephone Excise Tax Paid (TETR) appears
            to have prompted some to file who otherwise wouldn’t have filed on time.
       <    2007: The Economic Stimulus Payment appears to have given many an
            incentive to file on time who otherwise wouldn't have done so.
       <    Decline since 2007: Due both to a return to normal incentives and a poor
            economy (those just over the filing threshold more likely to file late or not
            at all).                                                                              15
Office of
Research

            Benefits of VFR Analysis

       < Improved   understanding of the extent to which
         Census understates certain income types
       < Developed a reasonable approach to imputing
         these incomes to the CPS each year
       < Better understanding of the drivers of VFR
         fluctuations over time
       < Improved 1040 instructions about the filing
         requirement

                                                           16

								
To top