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Criminal Investigation Enforcement Activities and Taxpayer Noncompliance

Author

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  • Dubin, Jeffrey A.

Abstract

This paper tests empirically whether measurable activities of the IRS Criminal Investigation Division (CI) affect taxpayer compliance. The analysis is based on a state-level cross-section for the time period from 1988 through 2001. First, I find that CI activities have a measurable and significant effect on voluntary compliance. Second, I conclude that the mix of sentenced cases (tax and money laundering) is not a significant determinant of tax compliance. Third, media attention shows some weak evidence of increasing compliance, at least among money laundering cases. Fourth, I find that incarceration and probation (rather than fines) have the most influence on taxpayers. Simulations using the estimated models show that the direct effect of doubling the audit rate on assessed tax collections (reported amounts and additional taxes and penalties) is $18.7 billion. Doubling CI tax and money laundering sentences is forecast to increase assessed collections by $16.7 billion. I estimate the general deterrence or spillover effects from either audit or CI activities to be approximately 94%.

Suggested Citation

  • Dubin, Jeffrey A., 2004. "Criminal Investigation Enforcement Activities and Taxpayer Noncompliance," Working Papers 1200, California Institute of Technology, Division of the Humanities and Social Sciences.
    • Handle: RePEc:clt:sswopa:1200
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    File URL: http://www.hss.caltech.edu/SSPapers/wp1200.pdf
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