Taxpayer audits are a central feature of the voluntary compliance system in the United States federal individual income tax. Audits are thought to have a direct deterrent effect on the individuals actually audited. Audits are also believed to have an indirect deterrent effect on individuals not...

Under the traditional model of U.S. federal income tax reporting and compliance, taxpayers report the results of their tax planning and operations on a net basis on their federal income tax returns. They provide relatively little or no information on a transaction-by-transaction basis. Taxpayers...