A Comparison of Tax Professionals'
Individual and Group Decisions When
Resolving Ambiguous Tax Questions
Gregory A. Carnes, Gordon B. Harwood, and Roby B.
This study examines the impact of group discussion
on the probability of tax professionals taking tax return positions
desired by clients in "gray areas" of the tax law. Based
on previous psychological research on choice shifts and group polarization,
group discussion is expected to lead to higher, more risky tax return
positions in scenarios characterized initially by high probabilities
of taking the tax return position desired by the client. In contrast,
group discussion is expected to lead to lower, more conservative
tax return positions in scenarios characterized initially by low
In experiment one, six ambiguous scenarios (three
high-probability and three law-probability) were presented to a
group of tax partners and managers. Subjects were assigned to groups
and asked to evaluate each scenario before and after a group discussion.
In experiment two, experiment one was replicated using two scenarios
with relevant tax law added. This provided subjects with a more
In general, the results provide support for the notion
that group discussion may lead to either risky or conservative shifts
in tax professionals' decisions. In experiment one, discussion led
to a risky, pro-taxpayer shift in all three high-probability scenarios
and a conservative, pro-IRS shift in two of three low-probability
scenarios. The addition of tax law in experiment two did not change
The Effect of Tax Authority
on Taxpayer Compliance:
A Procedural Justice Approach
Ronald G. Worsham, Jr.
The purpose of this study is to determine if tax collection
procedures that are perceived to be unfair cause taxpayers to underreport
their taxable income. The study draws upon procedural justice theory
to predict how taxpayers will respond to what they perceive as unfair
treatment by tax authorities. Two procedural justice constructs
are examined using an experiment: consistency and accuracy. In addition
to examining the direct effects of procedural injustice, this study
also tests whether unfair tax enforcement procedures experienced
vicariously will also adversely affect taxpaying behavior. The results
indicate that procedural injustice experienced indirectly through
becoming aware of another's unfair treatment increased the level
of noncompliance. Conversely, procedural injustice experienced personally,
either by being subject to inconsistency in enforcement or to enforcement
attempts brought about by inaccurate information, did not increase
the level of noncompliance. In fact, inconsistent audit rates actually
increased the level of compliance.
An Analysis of the Effect of
and its Perceived Justification on
Gregory A. Carnes and Andrew D. Cuccia
Prior research has investigated the effects of taxpayers'
perceptions of tax law equity and complexity on taxpayer compliance.
While tax equity and complexity, and taxpayers' perceptions of each,
are often hypothesized to be related, the nature of that relationship
is uncertain. Some believe they are incompatible; others argue that
equity sometimes requires complexity.
This research suggests that the complexity-equity
relationship is more complex than originally considered. Results
suggest that while perceived complexity generally has a negative
effect on perceptions of equity, taxpayers have consistent beliefs
regarding the necessity of tax complexity. These beliefs are found
to moderate the effect of complexity on equity perceptions. Further,
beliefs regarding the justification of complexity are found to differ
systematically across different tax items as well as complexity
of sources. The importance of taxpayers' understanding of the need
for tax complexity has at least two important implications for simplification
efforts aimed at improving compliance: (1) compliance might be improved
most by targeting for simplification those areas for which complexity
is seen as least justified rather than targeting areas seen as most
complex; and (2) efforts aimed at educating taxpayers as to the
purposes of existing tax complexity may be just as effective in
improving equity perceptions as a law change, which itself can be
a source of complexity.
The Timing of the Stock Market
Rifle-Shot Transition Rules
David S. Hulse
In the Tax Reform Act of 1986, Congress granted $10.6
billion of rifle-shot transition rules (RSTRs). These tax provisions
benefitted only one taxpayer and often were written in ambiguous
language so that the beneficiaries could not easily be identified.
Because of this secrecy, the timing of the stock market reaction
to these provisions is unclear ex ante. An event study, investigating
the timing of this reaction, was conducted. The results indicate
that the market reacted to these tax provisions before the release
of information which clearly identified the beneficiaries. This
suggests that some investors were able to take advantage of the
uneven playing field created by the secrecy and ambiguity of the
U.S. Tax Policy and the Location
Cynthia C. Vines and Michael L. Moore
This study tests the hypothesis that research and
development (R&D) tax policy impacts the worldwide location
of R&D expenditures by multinational companies based in the
U.S. Although the overall percentage of R&D performed offshore
did not change substantially between 1977 and 1989, large shifts
by a few industries indicate that R&D can be quite mobile.
Overall, R&D expenditure location appears to be sensitive to
the R&D credit rules instituted in 1981, as well as the foreign
tax credit limitation rules enacted in 1977, suspended in 1982,
and reenacted in 1986.