Tax Enforcement and Tax Policy: Evidence on Taxpayer Responses to EITC Correspondence Audits

John Guyton, Kara Leibel, Dayanand S. Manoli, Ankur Patel, Mark Payne, Brenda Schafer

NBER Working Paper No. 24465
Issued in March 2018
NBER Program(s):Labor Studies, Public Economics

Each year, the United States Internal Revenue Service (IRS) sends notices to selected taxpayers who claim Earned Income Tax credit (EITC) benefits to request additional documentation to verify those claims. This paper uses administrative tax data to examine the impacts of these correspondence audits on taxpayer behavior. The quasi-experimental research design compares randomly-selected audited taxpayers to taxpayers with similar risk scores who were not selected for a correspondence audit. The results indicate that, in the years following an audit, there are decreases in the likelihoods of claiming EITC benefits and filing returns. Taxpayers with self-employment income at the time of audit appear likely to increase wage employment following a correspondence audit, while taxpayers with wage income at the time of audit appear likely to decrease labor force participation following disallowance of EITC benefits. The results for wage earners indicate labor force participation elasticities of roughly 0.03.

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Document Object Identifier (DOI): 10.3386/w24465