According to the U.S. Census, 4.5 million people, or 2 percent of the total U.S. population, reported that they were at least part Indian in 2007. During the 2000 Census, about 36 percent of Indians lived on reservations. The largest federal Indian reservation covers roughly 15 million acres and the smallest reservation covers slightly more than 0.9 of an acre. Indian tribes are sovereign governments that generally are exempt from federal income taxation, but individual Indians are not exempt from income taxes. Indians are among the most economically distressed groups in the United States. The Census estimated in 2006 that 32 percent of American Indians and Alaska Natives were unemployed. The Census also reported that the median household income of American Indians and Alaska Natives was $33,762, nearly $15,000 less than the median of all households in the United States, and had the highest poverty rate of all Census ethnic categories at 26.6 percent. The federal government has more than 100 programs that can assist Indians. Indian tribes also have used various strategies to stimulate economic development on reservations, but our previous work has shown that the prospects for economic growth may be limited. Tribes own enterprises on reservations in a number of sectors, including gaming, tourism, manufacturing, natural resources, and agriculture, and some tribes may encourage private companies owned by nonmembers to locate on their reservations. Still, many tribes lack some of the factors, including accessibility to population centers and adequate physical infrastructure, shown to be important for economic growth. Reservations located in rural or remote locations have limited access to markets and may lack physical infrastructure, such as roads, electricity, water, and suitable land for building, making it difficult for many businesses to operate. In 1993, Congress passed legislation enacting IRD, which acts as an incentive for investing on Indian reservations. Depreciation is an annual deduction from income that allows taxpayers to recover the cost or other basis of certain property used in a business or other income-producing activity over the useful life of the property. The deduction is calculated on IRS Form 4562. According to IRS, MACRS is used to recover the basis of most property placed in service after 1986. The General Depreciation System (GDS) is one of the recovery systems permitted by MACRS. GDS allows taxpayers to depreciate their property using specified amounts of time—called recovery periods—which differ in length according to the category—called a property class—that the property belongs. For example, tractors and race horses are categorized as 3-year property. Under IRD, taxpayers use shorter recovery periods than are otherwise permitted under GDS. Table 1 shows the GDS schedule for property class recovery periods and the corresponding IRD schedule. Table 2 shows an example of the effects that IRD has on taxpayers’ depreciation deduction. According to the rules, the same method and convention should be used when calculating the deduction for IRD and GDS. To compare the difference in deduction between IRD and GDS most simply, the example uses the straight line method and the half-year convention to depreciate a property with a basis of $30,000 and falls in the 3-year property class. Under the rules for straight line depreciation, taxpayers deduct the same amount in each year except for the year in which the property was placed in service and the final year it was depreciated. With the half-year convention, the portion of the year during which the property is to be depreciated determines the amount deducted. With the half-year convention, as shown in table 2, one-half of the amount invested (called the basis) divided by the recovery period is deducted in the first and final years. IRD provides an incentive by permitting taxpayers to deduct a greater proportion of the cost of the property earlier within the property’s depreciable life. This deduction can reduce taxpayers’ tax liability, if any. Reducing tax liability earlier acts as an incentive because of the time value of money—having a lower tax payment today is worth more to the taxpayer than having the lower payment in the future. IRD was designed to reduce the after-tax cost of capital by exploiting this timing difference in deductions and thereby make more funds available to the taxpayer for additional investment on Indian reservations. To qualify for IRD, property must be used predominately in the conduct of an active trade or business on an Indian reservation. Some property, however, does not qualify for IRD even if it is located or used on a reservation, such as residential rental property, 25-year property, property acquired from a related person, and property placed in service for conducting or housing certain gaming facilities. An additional first-year bonus depreciation deduction was allowed for certain property—including MACRS property and any applicable IRD property—placed in service after September 10, 2001, and before January 1, 2005. The bonus depreciation deduction was available for property being depreciated using the IRD and GDS systems. For property acquired after September 10, 2001, and before May 6, 2003, and placed in service before January 1, 2005, a 30 percent rate applied. For property acquired after May 5, 2003, and placed in service before January 1, 2005, a 50 percent rate applied. Essentially, bonus depreciation allowed taxpayers a greater deduction in the first year in which property was placed in service. For example, under 50 percent bonus depreciation in 2004, the initial basis of a $50,000 property would have been reduced to $25,000, which the taxpayer then would have continued to depreciate under IRS’s guidelines for GDS or IRD. In 2005, we reported that information on tax expenditures, such as IRD, was needed to evaluate their effectiveness as a means of accomplishing federal objectives and to ensure that they are achieving their intended purpose. A wide variety of data could be useful for determining whether IRD is stimulating economic development on Indian reservations, but three essential pieces of information include which taxpayers claim IRD, how much they invest in IRD properties, and on which reservations they have placed IRD properties. The taxpayers’ identities and investment amounts are needed for several reasons, including for analyses determining whether and how much the IRD incentive is leading taxpayers to change their investment behavior consistent with the provision’s purpose. The IRD tax incentive, like other kinds of accelerated depreciation, could boost economic development, in the first place, by affecting business’ decisions about how much and where to invest. The identity of IRD investors and the amounts they invest could be used to determine whether the tax incentive increases the total amount of taxpayers’ investment or induces IRD investors to shift investment onto reservations from other locations, a shift that would be consistent with IRD’s purpose. The identity of IRD claimants also could be used to determine whether IRD overlaps other programs designed to assist Indians in a way that affects the incentive to invest on Indian reservations. The location of the IRD properties being placed into service is needed to assess whether those investments are affecting the economic development of the specific reservations on which the properties are placed. However, available data cannot be used to identify IRD claimants because of limitations in the manner in which IRS instructs taxpayers to report depreciation and limitations on how IRS compiles tax return information. Although IRD properties have unique recovery periods compared to other depreciation recovery periods and Form 4562 does provide space for taxpayers to report the recovery period, depreciation deduction, and basis by property class, this information is insufficient to determine whether the depreciation is IRD in all cases. Figure 1 shows how a taxpayer would report the depreciation of a $30,000, 3-year property to IRS. The taxpayer would report the basis, recovery period, method, convention, and depreciation amount on Part III of the form. The currently required information on Form 4562 is insufficient to identify accurately all claimants of IRD or the amounts they invest in IRD property in part because taxpayers are allowed to group properties on Form 4562. Form 4562 on line 18 permits taxpayers to combine properties in the same property class. If the properties within any given property class (lines 19a to 19i in figure 1) are both IRD and GDS properties, however, IRD claimants cannot be identified unless taxpayers indicate an IRD recovery period on the form. The instructions provide no guidance for how taxpayers should record recovery IRD periods if they are reporting both IRD and GDS property. IRD users can be identified from Form 4562 when they claim depreciation only for IRD property within any given property class and enter the recovery period correctly on Form 4562. However, even in this case, it is difficult to identify all users because IRS does not transcribe recovery period data from paper-filed Forms 4562 and electronically compile recovery periods into a database. Our data analysis also shows reported depreciation deductions that could be explained by taxpayers grouping IRD with non-IRD property. Given these limitations, we attempted to use the basis and depreciation amounts from Form 4562 (columns c and g in figure 1), which IRS does compile and maintain in its SOI database, to infer the recovery period. However, we found that the amount of depreciation and basis did not uniquely determine which recovery period was used by the taxpayer and thus did not identify all claimants of IRD. The reported depreciation and basis were consistent with both the IRD and the GDS depreciation recovery period for certain property classes when different methods and conventions were used. Accordingly, although we could identify reliably a portion of those who claimed IRD and the amounts they invested, we could not do so for a possibly significant portion of those who claimed IRD. When we reviewed a non-representative sample of corporate SOI returns to verify the reliability of our inference methodology, we also found that taxpayers may not fill out the form correctly.