“Most people don’t like paying taxes,” says Rebecca Lester, associate professor of accounting at Stanford Graduate School of Business. “But we can probably all agree that if we’re going to have a tax system, it should at least collect the full amount that’s due. Unfortunately, the estimated annual tax gap in the United States – or the difference between the amount the government believes it’s owed and the amount it receives – is more than half a trillion dollars.”

In the latest episode of GSB's Quick Study video series, Lester explains how her team uncovered the billions in missing revenue in a collaborative study conducted with the Internal Revenue Service (IRS) and Stanford RegLab.

Lester examined partnerships, one of the most opaque business structures in the U.S. tax code. These structures, which first appeared in the 1980s, now outnumber corporations two to one. And while most are small and straightforward, about 15% are sprawling, multitiered entities with hundreds or thousands of owners. Think of them like spiderwebs – intentionally complex, and difficult for an auditor to untangle.

But when the IRS does take a close look at a partnership, the results can be eye-popping: for every dollar spent, the agency claws back 20, and auditing complex partnerships yields eight times the return compared to auditing large C-corps.

“Our research implies that giving tax collectors more resources will recover much more money for the country,” Lester says. “It pays for itself and then some.”