Constraints on IRS Control: An Alternative Approach to Tax Gap Analysis
Commenced in January 2007
Frequency: Monthly
Edition: International
Paper Count: 32795
Constraints on IRS Control: An Alternative Approach to Tax Gap Analysis

Authors: J. T. Manhire


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.

Digital Object Identifier (DOI):

Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 677


[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.”
[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.