Randomized analysis finds that low-income taxpayers practice unplanned evasion more than high-income taxpayers, indicating potential compliance issues.
This study investigates whether the nonrandom element of human behavior could facilitate the detection of tax evasion. Unplanned Evasion (UPE) is defined to be blatant manipulation by the taxpayer of line items at filing time. Planned Evasion (PE) is the result of planned actions to conceal an audit trail. UPE requires that the taxpayer invent a number(s) for the line item(s). Benford's Law (Benford 1938) is used as an expected distribution for the digits in tabulated data. The assumption is that the digits of data that are truthfully reported, or are subject to PE, should conform to the expected digital frequencies. A Distortion Factor model that quantifies the extent of UPE is developed. Tax returns on the U.S. Internal Revenue Service Individual Tax Model Files are analyzed. The analysis, based on digital frequencies, Indicates that Low Income taxpayers practice UPE to a greater extent than High Income taxpayers.
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Mark J. Nigrini (1996) studied this question.
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