Despite a large literature on tax avoidance strategies by individuals and the IRS ability to curb them, how the agency’s audit/examination activities respond to tax expenditures within the individual taxation context is not well understood. We hypothesize that IRS audit probability of individual tax returns will positively respond to the magnitude of different tax expenditure drivers if the agency has a shot at curtailing them. We find that while the probability of IRS audit increases as the agency’s budget on enforcement activities increases, tax expenditures do not appear to prompt IRS enforcement activities in many of the tax expenditures drivers.
Akindayomi, Akinloye; Akileye, Gideon T.; and Ogunmakin, Adeduro A., "Empirical Evidence On The Relationship Between Audit Probability And Internal Revenue Service Budget Levels" (2018). Economics and Finance Faculty Publications and Presentations. 68.
Accounting & Taxation