Contemporary Issues in Taxation Research

Andy Lymer, David Salter

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781351949125
• Edition: 1
• Topic: Economics
• Subtopic: Public Finance
• Index: Economics

This book is based upon papers presented at the 10th Annual Conference of the Tax Research Network held at the University of Birmingham, United Kingdom, in September 2000. The book covers four discrete areas namely compliance, e-commerce and taxation, international taxation and taxation within the European Union, and value added tax, and focuses within those areas on issues of topical and continuing interest. In an introductory chapter, the editors provide an overview of the subject matter of each of the substantive chapters (of which there are eleven). They conclude by seeking to extrapolate from those chapters, notwithstanding their diversity, various matters of wider and contemporary import to taxation. The treatment of the material in this book by scholars from various academic disciplines and with differing geographical perspectives also gives distinct and instructive insights into widely recognised and enduring taxation problems within the above-mentioned subject areas. Further, an appreciation and understanding of the multi-faceted approaches which may be adopted for problem solving, and which are evident in this book, can only enhance the prospects of the ultimate resolution of these problems.

PART I:
COMPLIANCE

Chapter 3

Tax Practitioners and Tax Compliance

Peggy Hite, John Hasseldine, Abeer Al-Khoury, Simon James, Steve Toms and Marika Toumi*

Introduction

This chapter analyses the impact that tax practitioners potentially have on the tax compliance environment. Until relatively recently, taxpayer compliance research (see Richardson and Sawyer (2001) for an exhaustive review) did not consider the potential impact of the tax practitioner on the compliance decision. We review existing research on the role of the practitioner around three major issues: 1) the demand for tax preparation services, 2) the factors that affect practitioners’ compliance decisions, and 3) the compliance level of returns filed with assistance from practitioners.

The chapter is structured as follows. In the section two, we provide a general overview of the growing literature in this area over the last decade. In section three, we explore the decision to engage a practitioner. Section four illustrates a model of factors hypothesised to affect practitioners’ compliance judgements and decisions and section five reviews the literature on whether returns filed by practitioners are more/less compliant than those filed by taxpayers who prepare their own returns. Some concluding remarks are made in section six.

General overview

Over a decade ago, Roth et al. (1989) emphasised the role of tax practitioners on tax compliance and suggested that tax practitioners are sought out specifically to discuss tax matters and they frequently affect the actual risks and rewards of compliance, transmit values, and affect the costs of compliance. Tax practitioners affect taxpayers’ tax schemas by interpreting compliance requirements and offering judgements about the consequences of various actions. There are three services that tax practitioners explicitly provide: (1) return preparation, (2) tax advice, and (3) risk advice. Each of these services has potentially different effects on taxpayer compliance. Return preparation, the first function of tax practitioners, is where practitioners are expected to collect from taxpayers all necessary information and to complete returns with all required forms and schedules. Tax advice, the second function of tax practitioners, is where they apply their knowledge of tax regulations to advise clients on favourable but legal interpretations of those regulations and they are also expected to make use of extensive knowledge of tax laws, discretion, and diligence on their clients’ behalf. In other words, practitioners resolve the taxpayer’s uncertainty about tax treatment of ambiguous or confusing tax issues and also they plan tax payments or investments to minimise tax liability.

Roth et al. (1989) note that advice may be provided at the time of filing or throughout the tax year, to help clients structure their transactions in advance so as to minimise tax liability. Providing advice may include developing novel legal arguments to support favourable interpretation of a complex regulation that may apply to a particular transaction. If these arguments are not accepted by the tax agency, civil penalties may be assessed and in this way, tax advice may lead to non-compliance through disagreements between the advisor and the tax official over interpretations of complex regulations, as well as through a practitioner’s ignorance or lack of diligence. Consultation with an advisor usually insures the taxpayer against more severe criminal fines for tax evasion.

Risk advice, the third function of tax practitioners, emphasises knowledge of tax agency administrative practices, detection probabilities, and sanctioning practices rather than knowledge of tax regulations. In providing risk advice, practitioners advise clients on such matters as what reports are least likely to be challenged, which types of income are likely to be ignored by the tax agency.

Purdie and Roberts (1995, p.137) state that tax clients now are no longer content with a tax accountant who is merely a technical tax expert but they are looking for a business advisor: “Clients are looking for tax accountants who will approach them with new ideas for tax savings and business opportunities rather than tax accountants who sit by the telephone waiting to leap into action only when and if the client calls. Clients also are placing increasing importance on the clarity, style, and frequency of communications from their tax accountant regarding technical and business advice”.

Decision to engage a tax practitioner

Table 3.1 documents prior research that links taxpayers and tax practitioners and the demand for practitioners. These studies are briefly discussed prior to a discussion of six factors hypothesised to affect this decision.

Table 3.1: Decision to Engage a Tax Practitioner

Author(s)/Date/Method/DV	Subjects	Manipulations/Controls used	Primary findings
Collins et al. (1990) 1 if professional preparer engaged and 0 if taxpayer prepares own return. Mail survey	700 households (Oklahoma and Pennsylvania).	Mail Questionnaire on tax minimisation and most correct return.	Most correct return more effective than tax minimisation.
Christensen (1992) D.V:7-point Likert scales, strongly disagree to strongly agree. Mail survey	441 clients 31 tax preparers in 3 firms.	Mail Questionnaire on quality tax service (Technical and Functional quality).	Technical quality more effective than functional quality.
Hite and McGill (1992) D.V: 9-point scale, definitely yes to definitely no. Mail survey	262 residents from 3 sources: Telephone listings, driver licences, voter registrations.	Mail Questionnaire on tax practitioners’ recommendation, prob. of audit and severity of sanctions.	Subjects agree with conservative advice and disagree with aggressive advice.
Hite et al. (1992) D.V: 9-point Likert scales, 1 strongly agree to 9 strongly disagree. Mail survey	Nation wide survey of 300 small business owners.	Mail Questionnaire on why SBOs use tax practitioner.	Four potential motivations for an SBO to use a tax practitioner: 1. To have the return prepared correctly 2. To pay the least tax required 3. To avoid serious tax penalties or 4. To reduce the chances of being audited.
Schisler (1995) D.V: Equity probability of recommending deduction, on 0-100 scales, Consensus. Lab experiment	125 evening MBA students and 127 Big 6 CPAs.	30 minute scenario on Preparer status, withholding status, penalty.	Preparers had higher equity opinions; preparer status and withholding status significantly affected deduction decisions; taxpayers were significantly more aggressive with tax due; preparers had higher consensus.
Christensen and Hite (1997) D.V: 2 response scale 1 (definitely would not claim the deduction or not report the income) to 9 (definitely would claim the deduction or report the income) risk averse, risk seeking. Mail survey	466 middle to upper income U.S. residents from 3 sources: telephone directories, voter registration, driver licence lists in all 50 states.	Mail Questionnaire on income/deduction issue, level of certainty, winning/losing an IRS challenge.	Significant differences in the factors that affect risk averse taking individuals risk averse are influenced by outcomes being described in terms of winning or losing and IRS challenge. Risk takers are quite sensitive to higher probabilities of success. Taxpayers take more aggressive positions when the item in question is a deduction rather than additional income.
Tan (1999) D.V: The extent of agreement or disagreement with tax practitioner’s advice. 9-point scale (from definitely yes to definitely no). Mail survey	800 business firms, randomly sampled from the Yellow Pages of the telephone directory.	8 scenarios on aggressive and conservative advice (on tax deduction).	Conservative advice more effective than aggressive advice.

Collins et al. (1990) proposed a market segmentation approach that considers divergent taxpayer objectives and additional explanatory factors as an extension of previous research on the factors associated with taxpayer demand for professional preparer services. Collins et al. segmented their sample based upon the household’s self-reported primary taxpaying strategy (tax minimisation or most correct return), furthermore; they investigated factors associated with taxpayer use of professional preparers within each major segment. They found that approximately 70% of their sample approached the taxpaying process with the primary objective of filing the most ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Acknowledgements
• List of Contributors
• INTRODUCTION
• PART I: COMPLIANCE
• PART II: E-COMMERCE AND TAXATION
• PART III: INTERNATIONAL TAXATION: INTERNATIONAL AND EUROPEAN UNION INITIATIVES
• PART IV: VALUE ADDED TAX
• Index