Incorporating Indirect Effects in Audit Case Selection: An Agent-Based Approach

In selecting tax returns for its examination program the IRS historically has focused primarily on direct revenue maximization. According to Plumley and Steuerle (2004), “The appeal of direct revenue maximization is that, for the most part, it is measurable, and it provides a basis for making resource allocation decisions.” However, Plumley and Steuerle (2004, page 329) also point out that by relying on direct revenue maximization the IRS “views enforcement in isolation from voluntary compliance. To the extent that IRS activities—whether enforcement or non-enforcement—indirectly affect the voluntary compliance of the general population, it is the combination of direct and indirect revenue that is important.”