Constraints on IRS Control: An Alternative Approach to Tax Gap Analysis
A tax authority wants to take actions it knows will foster
the greatest degree of voluntary taxpayer compliance to reduce the
“tax gap.” This paper suggests that even if a tax authority could attain
a state of complete knowledge, there are constraints on whether and
to what extent such actions would result in reducing the macro-level
tax gap. These limits are not merely a consequence of finite agency
resources. They are inherent in the system itself. To show that this is
one possible interpretation of the tax gap data, the paper formulates
known results in a different way by analyzing tax compliance as a
population with a single covariate. This leads to a standard use of the
logistic map to analyze the dynamics of non-compliance growth or
decay over a sequence of periods. This formulation gives the same
results as the tax gap studies performed over the past fifty years
in the U.S. given the published margins of error. Limitations and
recommendations for future work are discussed, along with some
implications for tax policy.
[1] M. Schofield (2004) “Epictetus: Socratic, Cynic, Stoic.” Philosophical
Quarterly, 54(216):448-456. [2] J. T. Manhire (2015) “What Does Voluntary Tax Compliance Mean?:
A Government Perspective.” University of Pennsylvania Law Review
Online, 164(1)11-17.
[3] J. A. Dubin (2012) The Causes and Consequences of Income Tax
Noncompliance, pp. 5-11. New York: Springer.
[4] United States Government Accountability Office )2005) Tax Compliance:
Better Compliance Data and Long-term Goals Would Support a
More Strategic IRS Approach to Reducing the Tax Gap, GAO-05-753
(Washington, D.C.: July 18, 2005).
[5] J. T. Manhire (2015) “There Is No Spoon: Reconsidering the Tax
Compliance Puzzle.” Florida Tax Review, 17(8):623-668.
[6] D. Rifkin (2009) “A Primer on the Tax Gap and Methodologies for
Reducing It.” Quinnipiac Law Review, 27:375-424.
[7] J. Heiberg (2012) “FATCA: Toward a Multilateral Automatic Information
Reporting Regime.” Washington & Lee Law Review, 69:1685-1714.
[8] D. Dharmapala (2016) “Cross-border Tax Evasion under a Unilateral
FATCA Regime.” Journal of Public Economics, 141:29-37.
[9] W. H. Byrnes (2018) LexisNexis R Guide to FATCA and CRS Compliance,
§1.01. New York:Matthew Bender.
[10] Internal Revenue Service (2018) Strategic Plan FY 2018-2022, p. 7.
[11] M. G. Allingham & A. Sandmo (1972) “Income Tax Evasion: A
Theoretical Analysis.” Journal of Public Economics, 1(3):323-338.
[12] E. A. Posner (2000) “Law and Social Norms: The Case of Tax
Compliance.” Virginia Law Review, 86:1781-1819.
[13] J. Andreoni, B. Erard & J. Feinstein (1998) “Tax Compliance.” Journal
of Economic Literature, 36(2):818-860.
[14] L. Lederman (2003) “Tax Compliance and the Reformed IRS.” 51
Kansas Law Review, 51:971-1011.
[15] L. Lederman (2007) “Statutory Speed Bumps: The Roles Third Parties
Play in Tax Compliance.” Stanford Law Review, 60:695-743.
[16] C. P. Rettig (2006) “Non-Filers Beware: Who’s that Knocking at Your
Door?.” Journal of Tax Practice and Procedure, Oct.-Nov.:9-14.
[17] E. A. Zelinsky (1997) “For Realization: Income Taxation, Sectoral
Accretionism, and the Virtue of Attainable Virtues.” Cardozo Law
Review, 19:861-961.
[18] L. Lederman (2010) “Reducing Information Gaps to Reduce the Tax
Gap: When Is Information Reporting Warranted?” Fordham Law Review,
78:1733.
[19] S. B. Long (1980) The Internal Revenue Service: Measuring Tax
Offenses and Enforcement Response, pp. 80-87. Washington:National
Institute of Justice.
[20] J. A. Dubin, M. J. Graetz & L. L. Wilde (1987) “Are We a Nation of Tax
Cheaters?: New Econometric Evidence on Tax Compliance.” American
Economic Review, 77(2):240-245.
[21] R. P. Feynman (1948) “Space-time Approach to Non-Relativistic Quantum
Mechanics.” Review of Modern Physics, 20(2):367-387.
[22] H. Fry (2015) The Mathematics of Love: Patterns, Proofs, and the
Search for the Ultimate Equation, pp. 110-111. New York:Simon &
Schuster/TED.
[23] Y. Bard (1974) Nonlinear Parameter Estimation, p. 11. New York:
Academic Press.
[24] J. T. Manhire (2016) “Tax Compliance as a Wicked System.” Florida
Tax Review, 18(6):235-274.
[25] H. W. J. Rittel & M. M. Webber (1973) “Dilemmas in a General Theory
of Planning.” Policy Sciences, 4:155-169.
[26] C. W. Churchman (1967) “Wicked Problems.” Management Science,
4(14):B-141-42.
[27] R. Pearl & L. Reed (1920) “On the Rate of Growth of the Population
of the United States Since 1790 and Its Mathematical Representation.”
Proceedings of the National Academy of Sciences, 6(6):275-288.
[28] C. Hui (2006) “Carrying Capacity, Population Equilibrium, and Environment’s
Maximal Load.” Ecological Modelling, 192(2):317-320.
[29] V. I. Yukalov, E. P. Yukalova & D. Sornette (2009) “Punctuated
Evolution Due to Delayed Carrying Capacity.” Physica D: Nonlinear
Phenomena, 238(17):1752-1767.
[30] J. Alm, G. H. McClelland & W. D. Schulze (1992) “Why Do People
Pay Taxes?” Journal of Public Economics, 48(1):21-38.
[31] H. Pastijn (2006) “Chaotic Growth with the Logistic Model of P.-F.
Verhulst.” In: M. Ausloos, M. Dirickx (eds.) The Logistic Map and the
Route to Chaos, pp. 3-11. Berlin: Springer.
[32] R. M. May (1974) “Biological Populations with Nonoverlapping Generations:
Stable Points, Stable Cycles, and Chaos.” Science, 186(4164):645-
647.
[33] L. A. Randall (2005) Warped Passages: Unraveling the Mysteries of the
Universe’s Hidden Dimensions, pp. 28-29. New York: Ecco.
[34] W. J. Baumol & J. Benhabib (1989) “Chaos: Significance, Mechanism,
and Economic Applications.” Journal of Economic Perspectives 3(1):77-
105.
[35] B. B. Mandelbrot (1983) The Fractal Geometry of Nature p. 180. New
York:W. H. Freeman & Co.
[36] G. Georgiev & I. Georgiev (2002) “The Least Action and the Metric of
an Organized System.” Open Systems & Information Dynamics 9(4):371-
380.
[37] A. M. Provenzale, L. A. Smith, R. Vio, and G. Murante (1992)
“Distinguishing Between Low-Dimensional Dynamics and Randomness
in Measured Time Series.” Physica D: Nonlinear Phenomena, 58(1):31-
49.
[38] W. A. Brock & W. D. Dechert (2001) “Theorems on Distinguishing
Deterministic from Random Systems.” In: W. D. Dechert (ed.) Growth
Theory, Nonlinear Dynamics, and Economic Modelling: Scientific Essays
of William A. Brock (Economists of the Twentieth Century), pp.
265-283. Northampton, MA:Edward Elgar Publishing.
[39] M. C. de Jantscher (1990) “Administering a VAT.” In M. Gillis, C.
S. Shoup & G. P. Sicat (eds.) Value Added Taxation in Developing
Countries, p. 179. Washington:World Bank.
[40] R. M. Bird (2004) “Administrative Dimensions of Tax Reform.” Asia-
Pacific Tax Bulletin, 10(3):134-150.
[41] A. Christians (2018) “Introduction to Tax Policy Theory.”
https://dx.doi.org/10.2139/ssrn.3186791.
[42] R. Buchanan (1992) “Wicked Problems in Design Thinking.” Design
Issues, 8(2):5-21.
[43] “Congressional Budget and Impoundment Control Act of 1974.” Public
Law No. 93-344, 88 Statutes-at-Large 297, 2 United States Code §622(3)
(July 12, 1974).
[44] United States Government Accountability Office (2011) Tax Gap:
Complexity and Taxpayer Compliance, statement of Michael Brostek,
Director, Tax Issues Strategic Issues, GAO-11-747T (June 28, 2011).
[45] Internal Revenue Service News Release (2013) National Taxpayer
Advocate Delivers Annual Report to Congress; Focuses on Tax Reform,
IRS Funding and Identity Theft, IR-2013-3, (January 9, 2013).
[46] United States Department of the Treasury (2017) Tax Expenditures 2017.
[47] “Tax Reform Act of 1986.” Public Law No. 99-514, 100 Statutes-at-
Large 2085 (October 22, 1986).
[48] Internal Revenue Service (2016) “Tax Gap Estimates for Tax Years
2008-2010.”
[49] “An Act to provide for reconciliation pursuant to titles II and V of the
concurrent resolution on the budget for fiscal year 2018.” Public Law
No. 115-97, 131 Statutes-at-Large 2054 §11042(a) (December 22, 2017).
[50] A. J. Auerbach (1985) “The Theory of Excess Burden and Optimal
Taxation.” In: A. J. Auerbach & M. Feldstein (eds.) Handbook of Public
Economics, Volume 1, pp. 61-127. Amsterdam:Elsevier.
[51] United States Code, Title 26 §§121, 1012, 1014-1016; Code of Federal
Regulations, Title 26 §1.212-1(a),(k).
[52] D. J. Marples (2015) “Tax Expenditures: Overview and Analysis.”
Congressional Research Service Report 7-5700.
[53] S. S. Surrey (1970) “Tax Incentives as a Device for Implementing Government
Policy: A Comparison with Direct Government Expenditures.”
Harvard Law Review, 83(4):705-738.
[54] M. Engelschalk, S. Melhem, D. Weist (2000) “Computerizing Tax and
Customs Administrations.” PREMnotes, No. 44. Washington, DC: World
Bank.
[55] M. Viswanathan (2018) “Tax Compliance in a Decentralizing Economy.”
Georgia State University Law Review, 34(2):283-333.
[56] L. Lederman (2018) “Does Enforcement Reduce Voluntary Tax Compliance?”
B.Y.U. Law Review, 2018:(forthcoming).
[57] C. Andersson & P. T¨ornberg (2018) “Wickedness and the Anatomy of
Complexity.” Futures, 95:118-138.
[58] W. V. Quine (1962) “Paradox.” Scientific American, 206(4):84-99.
[59] A. O. Hirschman (2015) Development Projects Observed, pp. 148-166.
Washington:Brookings Institution.
[60] R. M. Bird (1992) “Improving Tax Administration in Developing
Countries.” Journal of Tax Administration, 1(1):23-45.
[1] M. Schofield (2004) “Epictetus: Socratic, Cynic, Stoic.” Philosophical
Quarterly, 54(216):448-456. [2] J. T. Manhire (2015) “What Does Voluntary Tax Compliance Mean?:
A Government Perspective.” University of Pennsylvania Law Review
Online, 164(1)11-17.
[3] J. A. Dubin (2012) The Causes and Consequences of Income Tax
Noncompliance, pp. 5-11. New York: Springer.
[4] United States Government Accountability Office )2005) Tax Compliance:
Better Compliance Data and Long-term Goals Would Support a
More Strategic IRS Approach to Reducing the Tax Gap, GAO-05-753
(Washington, D.C.: July 18, 2005).
[5] J. T. Manhire (2015) “There Is No Spoon: Reconsidering the Tax
Compliance Puzzle.” Florida Tax Review, 17(8):623-668.
[6] D. Rifkin (2009) “A Primer on the Tax Gap and Methodologies for
Reducing It.” Quinnipiac Law Review, 27:375-424.
[7] J. Heiberg (2012) “FATCA: Toward a Multilateral Automatic Information
Reporting Regime.” Washington & Lee Law Review, 69:1685-1714.
[8] D. Dharmapala (2016) “Cross-border Tax Evasion under a Unilateral
FATCA Regime.” Journal of Public Economics, 141:29-37.
[9] W. H. Byrnes (2018) LexisNexis R Guide to FATCA and CRS Compliance,
§1.01. New York:Matthew Bender.
[10] Internal Revenue Service (2018) Strategic Plan FY 2018-2022, p. 7.
[11] M. G. Allingham & A. Sandmo (1972) “Income Tax Evasion: A
Theoretical Analysis.” Journal of Public Economics, 1(3):323-338.
[12] E. A. Posner (2000) “Law and Social Norms: The Case of Tax
Compliance.” Virginia Law Review, 86:1781-1819.
[13] J. Andreoni, B. Erard & J. Feinstein (1998) “Tax Compliance.” Journal
of Economic Literature, 36(2):818-860.
[14] L. Lederman (2003) “Tax Compliance and the Reformed IRS.” 51
Kansas Law Review, 51:971-1011.
[15] L. Lederman (2007) “Statutory Speed Bumps: The Roles Third Parties
Play in Tax Compliance.” Stanford Law Review, 60:695-743.
[16] C. P. Rettig (2006) “Non-Filers Beware: Who’s that Knocking at Your
Door?.” Journal of Tax Practice and Procedure, Oct.-Nov.:9-14.
[17] E. A. Zelinsky (1997) “For Realization: Income Taxation, Sectoral
Accretionism, and the Virtue of Attainable Virtues.” Cardozo Law
Review, 19:861-961.
[18] L. Lederman (2010) “Reducing Information Gaps to Reduce the Tax
Gap: When Is Information Reporting Warranted?” Fordham Law Review,
78:1733.
[19] S. B. Long (1980) The Internal Revenue Service: Measuring Tax
Offenses and Enforcement Response, pp. 80-87. Washington:National
Institute of Justice.
[20] J. A. Dubin, M. J. Graetz & L. L. Wilde (1987) “Are We a Nation of Tax
Cheaters?: New Econometric Evidence on Tax Compliance.” American
Economic Review, 77(2):240-245.
[21] R. P. Feynman (1948) “Space-time Approach to Non-Relativistic Quantum
Mechanics.” Review of Modern Physics, 20(2):367-387.
[22] H. Fry (2015) The Mathematics of Love: Patterns, Proofs, and the
Search for the Ultimate Equation, pp. 110-111. New York:Simon &
Schuster/TED.
[23] Y. Bard (1974) Nonlinear Parameter Estimation, p. 11. New York:
Academic Press.
[24] J. T. Manhire (2016) “Tax Compliance as a Wicked System.” Florida
Tax Review, 18(6):235-274.
[25] H. W. J. Rittel & M. M. Webber (1973) “Dilemmas in a General Theory
of Planning.” Policy Sciences, 4:155-169.
[26] C. W. Churchman (1967) “Wicked Problems.” Management Science,
4(14):B-141-42.
[27] R. Pearl & L. Reed (1920) “On the Rate of Growth of the Population
of the United States Since 1790 and Its Mathematical Representation.”
Proceedings of the National Academy of Sciences, 6(6):275-288.
[28] C. Hui (2006) “Carrying Capacity, Population Equilibrium, and Environment’s
Maximal Load.” Ecological Modelling, 192(2):317-320.
[29] V. I. Yukalov, E. P. Yukalova & D. Sornette (2009) “Punctuated
Evolution Due to Delayed Carrying Capacity.” Physica D: Nonlinear
Phenomena, 238(17):1752-1767.
[30] J. Alm, G. H. McClelland & W. D. Schulze (1992) “Why Do People
Pay Taxes?” Journal of Public Economics, 48(1):21-38.
[31] H. Pastijn (2006) “Chaotic Growth with the Logistic Model of P.-F.
Verhulst.” In: M. Ausloos, M. Dirickx (eds.) The Logistic Map and the
Route to Chaos, pp. 3-11. Berlin: Springer.
[32] R. M. May (1974) “Biological Populations with Nonoverlapping Generations:
Stable Points, Stable Cycles, and Chaos.” Science, 186(4164):645-
647.
[33] L. A. Randall (2005) Warped Passages: Unraveling the Mysteries of the
Universe’s Hidden Dimensions, pp. 28-29. New York: Ecco.
[34] W. J. Baumol & J. Benhabib (1989) “Chaos: Significance, Mechanism,
and Economic Applications.” Journal of Economic Perspectives 3(1):77-
105.
[35] B. B. Mandelbrot (1983) The Fractal Geometry of Nature p. 180. New
York:W. H. Freeman & Co.
[36] G. Georgiev & I. Georgiev (2002) “The Least Action and the Metric of
an Organized System.” Open Systems & Information Dynamics 9(4):371-
380.
[37] A. M. Provenzale, L. A. Smith, R. Vio, and G. Murante (1992)
“Distinguishing Between Low-Dimensional Dynamics and Randomness
in Measured Time Series.” Physica D: Nonlinear Phenomena, 58(1):31-
49.
[38] W. A. Brock & W. D. Dechert (2001) “Theorems on Distinguishing
Deterministic from Random Systems.” In: W. D. Dechert (ed.) Growth
Theory, Nonlinear Dynamics, and Economic Modelling: Scientific Essays
of William A. Brock (Economists of the Twentieth Century), pp.
265-283. Northampton, MA:Edward Elgar Publishing.
[39] M. C. de Jantscher (1990) “Administering a VAT.” In M. Gillis, C.
S. Shoup & G. P. Sicat (eds.) Value Added Taxation in Developing
Countries, p. 179. Washington:World Bank.
[40] R. M. Bird (2004) “Administrative Dimensions of Tax Reform.” Asia-
Pacific Tax Bulletin, 10(3):134-150.
[41] A. Christians (2018) “Introduction to Tax Policy Theory.”
https://dx.doi.org/10.2139/ssrn.3186791.
[42] R. Buchanan (1992) “Wicked Problems in Design Thinking.” Design
Issues, 8(2):5-21.
[43] “Congressional Budget and Impoundment Control Act of 1974.” Public
Law No. 93-344, 88 Statutes-at-Large 297, 2 United States Code §622(3)
(July 12, 1974).
[44] United States Government Accountability Office (2011) Tax Gap:
Complexity and Taxpayer Compliance, statement of Michael Brostek,
Director, Tax Issues Strategic Issues, GAO-11-747T (June 28, 2011).
[45] Internal Revenue Service News Release (2013) National Taxpayer
Advocate Delivers Annual Report to Congress; Focuses on Tax Reform,
IRS Funding and Identity Theft, IR-2013-3, (January 9, 2013).
[46] United States Department of the Treasury (2017) Tax Expenditures 2017.
[47] “Tax Reform Act of 1986.” Public Law No. 99-514, 100 Statutes-at-
Large 2085 (October 22, 1986).
[48] Internal Revenue Service (2016) “Tax Gap Estimates for Tax Years
2008-2010.”
[49] “An Act to provide for reconciliation pursuant to titles II and V of the
concurrent resolution on the budget for fiscal year 2018.” Public Law
No. 115-97, 131 Statutes-at-Large 2054 §11042(a) (December 22, 2017).
[50] A. J. Auerbach (1985) “The Theory of Excess Burden and Optimal
Taxation.” In: A. J. Auerbach & M. Feldstein (eds.) Handbook of Public
Economics, Volume 1, pp. 61-127. Amsterdam:Elsevier.
[51] United States Code, Title 26 §§121, 1012, 1014-1016; Code of Federal
Regulations, Title 26 §1.212-1(a),(k).
[52] D. J. Marples (2015) “Tax Expenditures: Overview and Analysis.”
Congressional Research Service Report 7-5700.
[53] S. S. Surrey (1970) “Tax Incentives as a Device for Implementing Government
Policy: A Comparison with Direct Government Expenditures.”
Harvard Law Review, 83(4):705-738.
[54] M. Engelschalk, S. Melhem, D. Weist (2000) “Computerizing Tax and
Customs Administrations.” PREMnotes, No. 44. Washington, DC: World
Bank.
[55] M. Viswanathan (2018) “Tax Compliance in a Decentralizing Economy.”
Georgia State University Law Review, 34(2):283-333.
[56] L. Lederman (2018) “Does Enforcement Reduce Voluntary Tax Compliance?”
B.Y.U. Law Review, 2018:(forthcoming).
[57] C. Andersson & P. T¨ornberg (2018) “Wickedness and the Anatomy of
Complexity.” Futures, 95:118-138.
[58] W. V. Quine (1962) “Paradox.” Scientific American, 206(4):84-99.
[59] A. O. Hirschman (2015) Development Projects Observed, pp. 148-166.
Washington:Brookings Institution.
[60] R. M. Bird (1992) “Improving Tax Administration in Developing
Countries.” Journal of Tax Administration, 1(1):23-45.
@article{"International Journal of Business, Human and Social Sciences:78110", author = "J. T. Manhire", title = "Constraints on IRS Control: An Alternative Approach to Tax Gap Analysis", abstract = "A tax authority wants to take actions it knows will foster
the greatest degree of voluntary taxpayer compliance to reduce the
“tax gap.” This paper suggests that even if a tax authority could attain
a state of complete knowledge, there are constraints on whether and
to what extent such actions would result in reducing the macro-level
tax gap. These limits are not merely a consequence of finite agency
resources. They are inherent in the system itself. To show that this is
one possible interpretation of the tax gap data, the paper formulates
known results in a different way by analyzing tax compliance as a
population with a single covariate. This leads to a standard use of the
logistic map to analyze the dynamics of non-compliance growth or
decay over a sequence of periods. This formulation gives the same
results as the tax gap studies performed over the past fifty years
in the U.S. given the published margins of error. Limitations and
recommendations for future work are discussed, along with some
implications for tax policy.", keywords = "Tax law, tax compliance, tax gap, income tax.", volume = "12", number = "10", pages = "1428-11", }
