Ferguson 11-13-2020.pdf (466.94 kB)

GAMING THE IRS’S THIRD-PARTY REPORTING SYSTEM: EVIDENCE FROM PARI-MUTUEL WAGERING

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thesis
posted on 16.12.2020, 03:09 by Victor Charles Ferguson

This study examines whether taxpayers intentionally avoid IRS third-party reports. In 2017 an IRS amendment created an exogenous shock that impacted how third parties report gambling winnings to the IRS. In thoroughbred racing, this shock had a substantial impact on certain types of wagers. This paper considers how gamblers reallocated their money following the shock. Using a difference-in-differences research design that compares U.S. tracks to Canadian tracks, I find that gamblers increased their investment in wager types that had become less likely to trigger third-party reports by 27 percent. In the U.S., over $400 billion in tax revenue goes uncollected annually, largely due to unreported income. Third-party IRS reporting is considered the most effective way to reduce underreporting, but there is limited understanding of how taxpayers interact with third-party reporting rules. This paper provides evidence on this interaction, showing that taxpayers purposefully avoid third-party reports to facilitate tax evasion.

History

Degree Type

Doctor of Philosophy

Department

Management

Campus location

West Lafayette

Advisor/Supervisor/Committee Chair

Rick Laux

Additional Committee Member 2

Kevin Koharki

Additional Committee Member 3

Jonathan Black

Additional Committee Member 4

Theodore Goodman

Licence

Exports

Licence

Exports