Gaming the IRS’ Third-Party Reporting System: Evidence from Pari-Mutuel Wagering

Research output: Contribution to journalArticlepeer-review


This study examines whether taxpayers intentionally avoid Internal Revenue Service (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 United States to Canada, I find a 27% 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 because of 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 United States.

Original languageEnglish
Pages (from-to)1225-1261
Number of pages37
JournalJournal of Accounting Research
Issue number4
StatePublished - Sep 2023

Bibliographical note

Publisher Copyright:
© 2023 The Chookaszian Accounting Research Center at the University of Chicago Booth School of Business.


  • IRS
  • U.S. tax gap
  • income underreporting
  • third-party reporting

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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