Wed Sep 25 04:05:10 UTC 2024: ## Increased IRS Scrutiny May Lead to More Non-Financial Corporate Misconduct, Study Finds

**Lexington, KY** – A new study by researchers at the University of Kentucky, Pennsylvania State University, and the University of Arkansas suggests that the Internal Revenue Service’s (IRS) increased scrutiny of public companies, driven by the Inflation Reduction Act, could lead to a rise in non-financial corporate misconduct.

While previous research has shown the positive impacts of IRS monitoring on traditional stakeholders like shareholders, this study examines the effect on non-traditional stakeholders, including employees, consumers, and the environment.

The study, published in [Journal Name], analyzed a database of over 600,000 corporate misconduct incidents, finding a strong correlation between increased IRS monitoring and an uptick in violations related to employee safety, consumer protection, and environmental issues.

The researchers propose two explanations for this trend. First, companies facing increasing costs associated with IRS monitoring might reduce expenses elsewhere, potentially leading to a rise in non-financial misconduct. This could happen through intentional cost-cutting measures or through unintended consequences of budgetary constraints on lower-level managers.

Second, the added administrative and regulatory burden imposed by IRS monitoring might distract companies from other important issues, resulting in an increase in misconduct.

The study concludes that the relationship between IRS monitoring and non-financial misconduct is likely driven by the first mechanism, particularly affecting companies with tighter budgets and those with better internal information systems.

With the IRS planning to triple its audit rate on large corporations in 2024, the researchers urge policymakers to consider the potential unintended consequences of increased scrutiny on non-traditional stakeholders. They believe that the potential benefits of increased tax enforcement should be weighed against the potential negative impacts on other aspects of corporate behavior.

**About the Authors:**

Duke Ferguson, Robert Hills, and Trent Krupa are professors at the University of Kentucky, Pennsylvania State University, and the University of Arkansas, respectively. Their full research paper, “IRS Monitoring and Corporate Non-Financial Misconduct,” is available [link to paper].

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