Duke Ferguson's paper, "Gaming the IRS's Third-Party Reporting System: Evidence from Pari-Mutuel Wagering" has been published in the Journal of Accounting Research.
Abstract: This study examines whether taxpayers intentionally avoid IRS third-party reports. In 2017 an IRS amendment created a quasi-exogenous shock that reduced third-party tax reporting of pari-mutuel gambling winnings from certain types of wagers. I consider the effect that this rule change had on taxpayer behavior. Using a difference-in-differences research design comparing thoroughbred racing in the U.S. to Canada, I find a 27 percent increase in gambler's investment into wager-types that became less likely to trigger third-party reports. Further, I provide evidence that this effect was due to third-party reporting, not withholding, and was stronger in more informed gambling populations. These findings suggest that taxpayers knowingly avoid third-party reports, enabling underreporting of income to the IRS. This has important policy implications because underreported individual income is the largest driver of the $496 billion annual gap between legal tax liability and actual tax collections in the U.S. (Internal Revenue Service ).