Accuracy and errors in self-assigned NAICS codes in tax return data

Article type: Research Article

Authors: Oehlert, Christine¹

Affiliations: Internal Revenue Service, 1905 Carl St, Lauderdale, MN 55113, USA | E-mail: christine.b.oehlert@irs.gov

Correspondence: [*] Corresponding author: Internal Revenue Service, 1905 Carl St, Lauderdale, MN 55113, USA. E-mail: christine.b.oehlert@irs.gov.

Note: [1] The views expressed in this article are those of the author and do not necessarily reflect the views of the U.S. Internal Revenue Service or the Department of the Treasury.

Abstract: Conventional wisdom holds that North American Industry Classification System (NAICS) codes chosen by people not experienced with the system are often mis-specified, but there has been little formal research into the scope of the problem. In this paper we explore prevalence of and patterns in misspecification in NAICS codes self-reported on two kinds of business tax forms. Errors are identified by comparing as-filed codes with codes validated by Statistics of Income. We find that over a third of codes are wrong, but that the errors are not random and often (though not always) seem to have logical reasons behind them.

Keywords: Industry classification, business type, descriptive statistics

DOI: 10.3233/SJI-230035

Journal: Statistical Journal of the IAOS, vol. 39, no. 3, pp. 679-697, 2023