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Regression Analysis

The IRS wants to develop a method for deteting whether or not individuals have overstated their deductions for charitable contributions on their tax returns. To assist in this effort, the IRS supplied data found in the file Dat9-7.xlsx that accompanies this book listing the adjusted gross income (AGI) and charitable contributions for 11 tax-payers whose returns were audited and found to be correct.

A. Prepare a scatter plot of the data. Does there appear to be linear relationship between these variables?

B. Develop a simple linear regression model that can be used to predict the level of charitable contributions from a return's AGI. What is the estimated regression equation?

C. Interpret the value of R2.

D. How might the IRS use the regression results to identify returns with unusally high charitable contributions?

AGI Charitable Contributions
(in $1,000s)
$55 $4,200
$58 $4,800
$63 $6,329
$67 $8,017
$74 $7,400
$78 $8,600
$83 $12,290
$88 $10,406
$92 $11,820
$98 $12,090
$105 $14,675

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Solution Summary

This solution is comprised of a detailed explanation of various aspects of Regression Analysis as it pertains to the given problem. Supplemented with EXCEL output, this step-by-step explanation of this complicated topic provides students with a clear perspective of Regression Analysis.

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