MEASURING TAXPAYER COMPLIANCE BURDEN: A MICROSIMULATION APPROACH

The Internal Revenue Service (IRS) estimates that taxpayers spend more than 6 billion hours each year on tax compliance activities, such as tax planning, recordkeeping, and form completion. IRS is working with IBM to develop an improved methodology for measuring and modeling the burdens created by the federal tax system. This study will assist IRS in its mission to provide taxpayers with top quality service and will help the IRS understand the burdens placed on its customers by tax laws, tax system administration, and changes to those factors. The purpose of this report is to summarize the work conducted throughout design and development of the Individual Taxpayer Burden Model, focusing on research methodology. The creation of a unidimensional index to measure tax return complexity is described. Tax return complexity, as measured by the attribute index, has a positive impact on total time burden, and is highly statistically significant. Taxpayers who owe tax spend significantly more time than those who have a refund due.