SOI Tax Stats - Personal Wealth Study Data Source and Limitations


This page contains information about data sources and limitations for SOI's Personal Wealth Study.

Please visit Personal Wealth Statistics to access articles and tables from the study.

Statistics of Income collects data from an annual sample of Federal estate tax returns that are used primarily for policy and budget purposes. The sample follows a 3-year cycle that is designed mainly to accommodate year-of-death estimates, with each study concentrating on decedents who died in the first year (the focus year) of the 3-year cycle. The annual samples are also adequate for producing filing-year estimates.

Year-of-death estimates are desirable, because filing extensions and other filing delays mean that returns filed in any given calendar year may represent decedents who died in many different years. Thus, estate tax return data for a single filing year may reflect different economic and tax law conditions. By concentrating on a single year of death, these limitations can be overcome, making it possible to study the data in the context of a single time period.

Returns are selected using a stratified random sample with three stratifying variables. The stratifying variables are: year of death (focus year versus nonfocus years), total gross estate plus certain adjusted taxable gifts made during a decedent’s lifetime, and age at death. The gross estate plus gifts variable is divided into four categories: $1.5 million under $2.5 million, $2.5 million under $5 million, $5 million under $10 million, and $10 million or more. Age at death is also divided into five categories: under 40, 40 under 50, 50 under 65, 65 under 75, and 75 and older. Sample rates vary from 3 percent to 100 percent, with over half the strata selected with certainty, i.e., at the 100-percent rate.

SOI has combined Federal estate tax returns filed in 2007, 2008, and 2009 to produce the estimates of wealth for 2007 presented here. One of the strengths of estimates derived from SOI samples of estate tax returns is the large sample on which the estimates are based. The 2007 sample includes more than 17,800 returns.

While the sample size and richness of available data make the estimation techniques used in this study attractive, there are limitations to be noted. First, and most important, estate tax returns provide a presumably random sample, stratified by age, not of the total population, but of living persons with gross estates at or above the estate tax filing threshold. Sample rates are approximated by appropriate mortality rates. However, determining appropriate mortality rates for use in calculating sample weights is by no means a straightforward exercise. Please see this explanation of the estate multiplier technique for more information.

Second, while estate tax returns are generally prepared by professionals and are, therefore, likely to be more accurate in detail than survey responses, the values reported are used to compute tax liability, so that there is a natural tendency for the values to be somewhat conservative. This is especially true for hard-to-value assets, such as businesses and certain types of real estate.

It should also be noted that the estate tax data used for these estimates are preaudit figures. A Statistics of Income (SOI) study, based on the results of IRS audits of estate tax returns, estimated that detected undervaluation of assets was about 1.2 percent of total asset holdings. In addition, it is common to claim substantial discounts when valuing ownership interests of less than 50 percent in small companies, partnerships, and other nonliquid assets. Increasingly, estate planning techniques are used to fracture ownership interests in a variety of business and financial assets to take advantage of these discounts.

Third, while estate tax returns report assets that are owned outright, total wealth might ideally include wealth to which a person has an income interest but not necessarily actual title. Examples of the latter include defined benefit pension plans and Social Security benefits.

Finally, the wealth of some individuals near death may differ somewhat from that of the general population in the same age cohort. For some, portfolios may have been altered or simplified to ensure the uninterrupted continuation of an ongoing business or to simplify the task of executing the estate. For others, wealth will have been reduced through expenses related to a final illness. In many cases, effective estate planning may also have reduced the value of the estate reportable for tax purposes.