A study finds that offshore accounts and private businesses hid income that routine audits rarely detected.
The researchers combined individual audit records with data from audits of S corporations, IRS operational audits and targeted enforcement initiatives involving offshore accounts and specific business schemes. They found that routine individual audits rarely examined pass-through business income at the business level and almost never detected offshore evasion.
Using these additional sources, the researchers estimated how much unreported income the random audits missed. Their adjustments put more of the country’s unreported income among the top 1% than estimates based on individual random audits alone, with the size of the adjustment varying substantially by the assumptions used.
What the audits missed
Random audits detected less than 1% of income as underreported among the top 0.01% of reported-income taxpayers, but the researchers say this sharp decline reflects missed sophisticated evasion rather than necessarily lower evasion. Offshore evasion was almost entirely absent from the random-audit data, and audits rarely examined income from partnerships and S corporations at the entity level.
Across the researchers’ estimates, adding offshore and pass-through evasion increased the share of all unreported income attributed to the top 1% by 9 to 33 percentage points. In the top 1%, random-audit data alone indicated that 2.3% of true income was underreported; the researchers’ estimates ranged from 5.6% to 14.9%, depending on the assumptions. They also find that pass-through evasion was likely more important quantitatively than offshore evasion.
Why the estimates matter
Random audits are used to estimate tax noncompliance and to study the distribution of unreported income. If those audits miss forms of evasion that are concentrated among high-income taxpayers, estimates based only on them can understate evasion at the top and distort assessments of how unreported income is distributed.
The results indicate that measuring top-end tax evasion requires evidence beyond routine individual audits, including information on offshore income, pass-through businesses or more comprehensive audits of high-income taxpayers.
Evidence and limits
The study combines 2006–2013 individual random-audit data with audits of S corporations, IRS operational audits and targeted enforcement records. Its estimates of missed offshore and pass-through evasion are imputations, so the results vary with assumptions about the amount of concealed offshore income and how the income is distributed. The researchers hold estimated non-sophisticated evasion fixed while adding these forms of evasion.
The main limitation is that the conclusions concern the procedures used in individual random audits during 2006–2013. Those audits were not designed to comprehensively examine extremely high-income or high-wealth taxpayers, and the findings do not establish whether later changes in audit procedures would address the same gaps. The researchers also note that other sophisticated forms of evasion may not be captured by their estimates.
// Source
Journal of Public Economics · 2026 · DOI: 10.1016/j.jpubeco.2026.105812
Authors: John L. Guyton, Patrick Langetieg, Daniel Reck, Max Risch, Gabriel Zucman
Institutions: University of Maryland, College Park, University of California, Berkeley, Carnegie Mellon University, Paris School of Economics, Internal Revenue Service
