Working Paper: NBER ID: w21412
Authors: Joel Slemrod; Brett Collins; Jeffrey Hoopes; Daniel Reck; Michael Sebastiani
Abstract: We investigate the response of small businesses operating as sole proprietorships to Form 1099-K, an information report released in 2011 which provides the Internal Revenue Service with information about payment card sales. Theory and distributional analysis isolates affected taxpayers, who report receipts equal to or slightly exceeding the receipts reported on 1099-K. Information reporting made these taxpayers more likely to file a return declaring business income, and increased filers’ reported receipts by up to 24 percent. Taxpayers largely offset increased reported receipts with increased reported expenses, which do not face information reporting, diminishing the impact on reported net taxable income.
Keywords: small business; tax compliance; information reporting; credit card payments
JEL Codes: H26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of form 1099K (H24) | increase in compliance among small businesses (K29) |
| form 1099K (H24) | increase in reported receipts (H69) |
| form 1099K (H24) | increase in reported expenses (M41) |
| increase in reported receipts (H69) | decrease in net taxable income (H24) |
| introduction of form 1099K (H24) | start filing Schedule C (M41) |
| reported gross receipts within 5% of 1099K amount (H27) | behavioral response to information reporting (D91) |