scholarly journals Bunching to Maximize Tax Credits: Evidence from Kinks in the US Tax Schedule

2020 ◽  
Vol 12 (3) ◽  
pp. 402-432
Author(s):  
Jacob A. Mortenson ◽  
Andrew Whitten
Keyword(s):  
Growth Rate ◽  
Income Tax ◽  
Tax Credits ◽  
Sample Period ◽  
Unique Point ◽  
The Us ◽  
Tax Returns

We explore bunching at US income tax kinks using a panel of 258 million tax returns from 1996 to 2014. We find bunching at seven kinks, with nearly all bunching occurring at kinks maximizing tax credits. In our sample period, the total number of bunchers increased at an 11 percent annualized growth rate, from 134,300 in 1996 to 866,600 in 2014. Approximately two-thirds of these bunchers locate at the unique point that maximizes refunds. Some taxpayers repeatedly bunch at this point, even in consecutive years when different tax kinks are refund maximizing. (JEL H24, H26, H31)

Canada

2018 ◽  
Author(s):  
Joshua T. McCabe
Keyword(s):  
Income Tax ◽  
Child Poverty ◽  
Tax Credits ◽  
Primary Method ◽  
Tax Relief ◽  
The Us ◽  
Cash Benefits ◽  
Child Tax Credit ◽  
Family Allowances ◽  
Initial Change

Chapter 4 examines how Canadian policymakers’ renewed promise to tackle child poverty translated into the Child Tax Benefit, the nonrefundable Child Tax Credit, and the Working Income Tax Benefit. Whereas the logic of tax relief served as the springboard for fiscalization in the US, the logic of income supplementation drove the process in Canada. This difference had important implications for the shape and scope of Canadian tax credits, enabling them to significantly reduce child poverty relative to the much weaker outcomes in the US. Family allowances offered policymakers an alternative to welfare as the primary method of delivering cash benefits to children. Canadian policymakers, including conservative policymakers and profamily groups, saw expanding child tax credits as a way to “take children off welfare” by redirecting benefits through a nonstigmatizing program. The initial change occurred under the Progressive Conservatives in 1992 and was consolidated under the Liberals in 1997.

Optimal Taxation of Families: Mirrlees meets Becker*

2021 ◽  
Author(s):  
Musab Kurnaz
Keyword(s):  
Quantitative Analysis ◽  
Income Distribution ◽  
Income Tax ◽  
Optimal Taxation ◽  
Tax Credits ◽  
Child Rearing ◽  
Welfare Gains ◽  
Us Economy ◽  
Parental Time ◽  
The Us

Abstract This paper studies optimal taxation of families—a combination of an income tax schedule and child tax credits. Child-rearing requires both goods and parental time, which distinctly impact the design of optimal child tax credits. In the quantitative analysis, I calibrate my model to the US economy and show that the optimal child tax credits are U-shaped in income and are decreasing in family size. In particular, the optimal credits decrease in the first nine deciles of the income distribution and then increase thereafter. Implementing the optimum yields large welfare gains.

How Chevron, Texaco, and the Indonesian Government Structured Transactions to Avoid Billions in U.S. Income Taxes

2003 ◽  
Vol 17 (2) ◽  
pp. 107-122 ◽  
Author(s):  
Jeffrey D. Gramlich ◽  
James E. Wheeler
Keyword(s):  
Crude Oil ◽  
Income Tax ◽  
Income Taxes ◽  
Tax Credits ◽  
The Other ◽  
Production Sharing ◽  
Tax Returns ◽  
State Income ◽  
The Government ◽  
State Taxes

This paper explains the transactions, agreements, and accounting that Chevron, Texaco, and the Government of Indonesia used to structure transactions that avoided billions in U.S. income taxes. Although ChevronTexaco became a merged entity on October 9, 2001, for many years Chevron and Texaco operated as separate corporations, with each owning 50 percent of a group of primarily non-U.S. companies collectively known as Caltex. Transactions were structured such that Chevron and Texaco subsidiaries paid Caltex excessive prices for Indonesian crude oil, leading to excessive dividend income (with foreign tax credits) and cost of sales deductions on U.S. income tax returns. When one of the equal shareholders purchased more overpriced oil than the other, Caltex paid monthly “Special Dividends” to the “overlifter” that could be construed as cost rebates, not dividends. To compensate for the extra taxes it received, the Government of Indonesia provided Caltex with oil in excess of the amount called for under the formal production-sharing contract (PSC) with the Government of Indonesia. We estimate that this arrangement allowed Chevron and Texaco together to annually avoid paying some $220 million in federal income taxes and $11.1 million in state income taxes from 1964 to 2002. These estimates produce total federal and state taxes avoided of $8.6 billion and $433 million, respectively, for the combined company, ChevronTexaco.

Criminal Prosecution of Tax Return Preparers

2008 ◽  
Vol 6 (1) ◽  
pp. 24-42
Author(s):  
Nancy B. Nichols
Keyword(s):  
Income Tax ◽  
Tax Credits ◽  
Internal Revenue Service ◽  
Criminal Investigation ◽  
Criminal Prosecution ◽  
Earned Income ◽  
Financial Crimes ◽  
Tax Returns ◽  
The Government

Over 61 percent of individual taxpayers, accounting for more than 76 million returns, utilized the services of paid preparers in 2005. However, hiring a paid preparer does not assure the taxpayer or the government that the return will be prepared correctly. Tax return preparer fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns completed for their clients or fictitious taxpayers. Preparers may also manipulate income figures to fraudulently obtain tax credits, such as the earned income tax credit. The Criminal Investigation (CI) division of the Internal Revenue Service (IRS) prosecutes the most serious cases of preparers suspected of criminal or fraudulent behavior and other related financial crimes. This article investigates the role of CI in prosecuting tax return preparers and analyzes the results of 377 published tax return preparer criminal tax cases from 2000 through 2005. The paper also reviews various alternatives for discouraging fraudulent behavior, including registration of all paid preparers, automatic return preparation by the IRS, more stringent preparer penalties, and improved collection of assessed preparer penalties.

scholarly journals 2003 Handbook of Employment Regulations Affecting Florida Farm Employers and Workers: Earned Income Tax Credit [Federal]

EDIS ◽  
1969 ◽  
Vol 2003 (11) ◽  
Author(s):  
Leo C. Polopolus ◽  
Michael T. Olexa ◽  
Fritz Roka ◽  
Carol Fountain
Keyword(s):  
Income Tax ◽  
Resource Economics ◽  
Earned Income Tax Credit ◽  
Cooperative Extension Service ◽  
Tax Credits ◽  
Extension Service ◽  
Tax Credit ◽  
University Of Florida ◽  
Earned Income ◽  
Tax Returns

Earned income tax credit provides qualified employees with earned income tax credits for their tax returns or advanced payments throughout the year. This is EDIS document FE394, a publication of the Department of Food and Resource Economics, Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida, Gainesville, FL. Published July 2003. This information is included in Circular 1200, Handbook of Employment Regulations Affecting Florida Farm Employers and Workers.  FE394/FE394: 2017 Handbook of Employment Regulations Affecting Florida Farm Employers and Workers: Earned Income Tax Credit [Federal] (ufl.edu)

scholarly journals THOSE WHO KNOW, THOSE WHO DON'T, AND THOSE WHO KNOW BETTER: BALANCING COMPLEXITY, SOPHISTICATION, AND ACCURACY ON TAX RETURNS

2014 ◽  
Vol 11 (1) ◽  
pp. 113
Author(s):  
Michelle Lyon Drumbl
Keyword(s):  
Low Income ◽  
Income Tax ◽  
Tax Credits ◽  
Social Benefits ◽  
Tax Credit ◽  
Poverty Measure ◽  
Tax Returns ◽  
Federal Income Tax ◽  
Eligibility Requirements ◽  
The Right

Refundable credits, particularly the earned income tax credit (EITC) and the child tax credit, serve an important anti-poverty measure for low-income taxpayers.  Annually, millions of taxpayers who do not owe any federal income tax must file a tax return in order to claim these credits that are in the nature of social benefits.  The eligibility requirements for refundable credits are complex, and these returns are particularly prone to audit: EITC audits comprise one-third of all individual income tax audits.  Because of the large dollar amounts at stake, a taxpayer’s mistaken understanding of the eligibility requirements for these refundable credits can often result in a deficiency of several thousand dollars. Though studies indicate that taxpayer error is more commonly inadvertent than intentional, the section 6662 20% accuracy-related penalty applies once the deficiency reaches a statutory “understatement” threshold; it is imposed computationally and without regard to the taxpayer’s intent. By statute, taxpayers have the right to contest the accuracy-related penalty by demonstrating that there was reasonable cause for the underlying error and the taxpayer acted in good faith. Treasury regulations provide that such a circumstance might include “an honest misunderstanding of fact or law that is reasonable in light of all the facts and circumstances, including the experience, knowledge, and education of the taxpayer”.  Yet for all of these reasons – lack of experience, lack of knowledge, and relative lack of education – the taxpayer is unlikely to have the knowledge or resources to raise the very defense that is meant to protect an unsophisticated taxpayer. Drawing comparisons between refundable tax credits and social programs administered by other agencies, this article calls upon the IRS to better differentiate between inadvertent error (“those who don’t know”) and intentional or fraudulent error (“those who know better”).  The article argues that the current accuracy-related penalty approach is unduly punitive.  It concludes by proposing solutions that the IRS might consider in light of Congress’s desire for the Service to administer these social benefits through the Internal Revenue Code.

scholarly journals Personal Tax Planning: GILTI—Introduction to GILTI and Its Application to US Shareholders of Canadian Corporations

2019 ◽  
Vol 67 (2) ◽  
pp. 411-435
Author(s):  
Michael Pereira ◽  
Pinaki Gandhi ◽  
Hena Park
Keyword(s):  
Tax Planning ◽  
Tax Credits ◽  
Tax Rate ◽  
Much Ado About Nothing ◽  
Tax Cost ◽  
The Us ◽  
Tax Returns ◽  
Foreign Corporations ◽  
A Current ◽  
Personal Tax

The new global intangible low-taxed income (GILTI) regime, introduced as part of the 2017 US tax reform, attributes income of certain foreign corporations in excess of an arbitrary 10 percent return to intangible assets and subjects such income to US tax on a current basis for certain US individual shareholders. This article explains how US citizens resident in Canada who are subject to the GILTI rules may effectively manage the adverse implications of the regime by utilizing an election under section 962 of the Internal Revenue Code. The election allows individual shareholders to be taxed at the US domestic corporate tax rate of 21 percent (instead of a maximum personal tax rate of 37 percent), claim a deduction for 50 percent of the GILTI inclusion, and claim foreign tax credits for a portion of Canadian corporate taxes paid. With this election, a combined corporate and personal global tax liability may remain mostly consistent with the pre-GILTI era. On the other hand, if the GILTI exposure is not appropriately managed, the result is significantly different. With proper advice and reporting, for some US shareholders, the GILTI provisions may be a case of "much ado about nothing." However, for US shareholders of corporations that pay the small business rate, there is a small tax cost to the GILTI inclusion for maintaining the benefit of deferral. For all US shareholders of Canadian corporations, there are still some unaddressed issues that add complexity and uncertainty to the preparation of those individuals' US income tax returns.

A Re-Examination of the Effects of Personal Deductions, Tax Credits and the Tax Rate Schedule on Income Tax Progressivity and Income Inequality

1999 ◽  
Vol 21 (1) ◽  
pp. 32-44 ◽  
Author(s):  
James C. Young ◽  
Sarah E. Nutter ◽  
Patrick J. Wilkie
Keyword(s):  
Income Inequality ◽  
Income Tax ◽  
Substantial Effect ◽  
Tax Credits ◽  
Return Level ◽  
Tax Rate ◽  
Tax Progressivity ◽  
Tax Returns ◽  
Standard Deduction ◽  
State And Local

We refine and extend Seetharaman (1994) using tax-return-level Statistics of Income data that represent the population of 1992 federal individual income tax returns. Our results indicate that while the standard deduction, exemptions and tax rate schedule continue to contribute the most to progressivity, the rate schedule plays a much greater role (and the standard deduction and exemptions a much lesser role) than previously reported. In addition, consistent with Dunbar (1996), we find that tax credits, in particular the earned income credit, have a substantial effect on overall tax progressivity. Although itemized deductions continue to reduce overall progressivity, with housing costs (mortgage interest and real estate taxes) and state and local income tax deductions being the dominant items, our results indicate that their effect on tax progressivity is smaller than indicated in the earlier study. Finally, we find that the effect of the income tax system on income inequality is more pronounced than previously reported, especially when the data are partitioned by filing status.

scholarly journals What Explains the Redistribution Achieved by the Italian Personal Income Tax? Evidence from Administrative Data

2016 ◽  
Vol 46 (1) ◽  
pp. 7-28 ◽  
Author(s):  
Gian Paolo Barbetta ◽  
Simone Pellegrino ◽  
Gilberto Turati
Keyword(s):  
Administrative Data ◽  
Income Tax ◽  
Personal Income ◽  
Tax Credits ◽  
Tax Credit ◽  
Tax Rates ◽  
Personal Income Tax ◽  
Tax Returns ◽  
The Government ◽  
Redistributive Effect

We analyze the Italian personal income tax (PIT) in the light of the different tools available to the government to achieve income redistribution. We focus in particular on three mechanisms: marginal tax rates, deductions, and tax credits. Exploiting an extended version of the standard Pfähler decomposition, we estimate the contribution of each of these three tools to the overall redistributive effect of the PIT using administrative data on more than 1.3 million individual tax returns. Our estimates suggest that more than half of the total PIT redistributive effect is due to the two most important tax credits (the tax credit for employment and the tax credit for retirement income), while the marginal rates schedule contribution is about 40 percent. On the contrary, most of the itemized expenditures do not show any sizable impact on redistribution.

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