Taxpayer Information Assistance Services and Tax Reporting Behavior

* The research reported here was partially funded by the IRS (TIRNO – 07 – P – 00683). The views expressed are those of the authors, and do not reflect the opinions of the Internal Revenue Service (IRS) or of any researchers working within the IRS. An earlier version of this paper, with pilot data only, was presented at the 2007 IRS Research Conference, under the title " I'm From the IRS and I'm Here to Help You ". We are grateful to Kim Bloomquist and to participants at the conference for helpful discussions and comments. Abstract The traditional " enforcement " paradigm of tax administration views taxpayers as potential criminals, and emphasizes the repression of illegal behavior through frequent audits and stiff penalties. However, an important trend in tax administration policies in recent years is the recognition that this paradigm is incomplete. Instead, a revised " service " paradigm recognizes the role of enforcement, but also emphasizes the role of tax administration as a facilitator and a provider of services to taxpayer-citizens. While such " kinder, friendlier " provisions may improve the image of the tax authority, and indeed have been an essential part of many recent tax administration reforms around the world, their actual effect on tax compliance has never, to our knowledge, been quantified. This research utilizes laboratory experiments to test the effectiveness of taxpayer service programs in enhancing tax compliance. Our basic experimental setting mimics the naturally occurring environment: subjects earn income, they must choose whether to file a tax return, and they then must choose how much of their net income to report to a tax authority that may audit the subject. To investigate the effects of taxpayer services, we " complicate " these compliance decisions of subjects, and then provide " services " from the " tax administration " that allow subjects to compute more easily their tax liabilities. Our results indicate that tax agency provided information on an individual's tax liability has little impact on the tendency of an individual to file a tax return, but that this information has a significant and positive effect on reporting for individuals who choose to file a return.