Size, Causes and Consequences of the Underground Economy

Chapter 11Tax Noncompliance in the United States: Measurement and Recent Enforcement Initiatives*

Kim M. Bloomquist, Alan H. Plumley and Eric J. Toder

Introduction

For more than four decades, the US Internal Revenue Service (IRS) has conducted research into the causes and major sources of tax noncompliance. Beginning in Tax Year (TY) 1963, the IRS launched a series of random taxpayer audits known as the Taxpayer Compliance Measurement Program (TCMP). The TCMP had two purposes: to provide the necessary data to develop the discriminant function (DIF) formulas, which use a mathematical technique to identify tax returns likely to have significant understatement of tax, and to provide estimates of what became known as the ‘tax gap’; i.e., the difference ...