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Christina Ritsema

Christina Ritsema
(Business Administration)

August 2009

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Research shows tax amnesty produces a sigh of relief

While tax amnesty programs provide predictable relief for delinquent tax filers and the government entities to which they owe money, research conducted by Christina Ritsema (Business Administration) shows the emotional release may be just as rewarding as the financial benefits.

Ritsema’s research is used by tax collection agencies around the country because recent legislation now bars the collection of such behavioral data. Ritsema conducted her research in Arkansas while completing her doctoral dissertation. She will give a presentation on the subject at the national conference of the American Accounting Association, currently under way in New York.

“We found that a lot of times when people didn’t file a tax return and pay their taxes, they felt very guilty about it,” Ritsema says. “They’re so thankful for the amnesty because it relieves their guilt. For those who wrote comments, the majority indicated they were very thankful.”

Tax amnesty programs typically offer a short window of opportunity for delinquent taxpayers to file returns and pay their taxes without penalty. The taxing entity’s goal is to collect as much in back taxes as possible, and it will often impose larger penalties or threaten audits for those who fail to take action. New Jersey estimates it might collect as much as $700 million from its recent amnesty program.

“The reason states have these programs is not just to get the cash, but to get people on the tax file rolls,” Ritsema explains. “They want to know who you are so they can follow up automatically. Encouraging people to be compliant is a big deal to states.”

Ritsema’s research showed most people who are non-compliant claim predictable reasons for not filing, such as financial stress or illness. However, a surprising number simply don’t understand the tax code – to the point of not realizing they need to file if they don’t receive a tax form in the mail. Surprisingly, some non-compliant filers were even owed tax refunds.

“Some of the lower-income taxpayers didn’t even know they owed tax,” Ritsema says. “Many of these people aren’t educated, which isn’t a bad thing; it’s just a real thing.”

It was more common for middle-income and upper-income people to mistakenly think they had filed when they had not. They typically didn’t complain about the tax code being hard to understand.

It’s a discrepancy in attitudes that indicates a social injustice. “We need to be thinking that there are people who just don’t understand because our system is too hard,” Ritsema says. “One thing my research showed is that if government does more training, it has a real practical effect.”

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