JATA - Spring 1989

Volume 10, No. 2

Instructional Strategies and the Development of Tax Expertise

Urton Anderson, Garry Marchant, and John Robinson


The effect of instructional strategy on tax expertise was investigated in an experimental setting. Fifty-eight introductory tax students received instruction in a specific tax issue ("similar or related in service or use" under I.R.C. Section 1033) using three instructional strategies (cases, examples, and concepts). Rule application and factor identification were used as measures of performance. Two different variations of the "similar or related" issue were investigated: the first variation involved an atypical context and the second involved an increase in ambiguity. Subjects in the examples treatment outperformed those in the cases and concepts treatment in terms of rule application. Overall, subjects in the cases and concepts treatments out- performed those in the examples treatment in terms of factor identification. Variation of scenarios between typical and atypical did not, in general, affect factor identification, In an ambiguous situation subjects in the concepts treatment outperformed subjects in the cases and examples treatments. Although not attaining the level of performance of subjects in the concepts treatment, subjects' performance on factor identification for the cases treatment was found to improve when prior problems were based on atypical rather than typical contexts. These results imply that instructional strategy and variation in context during learning influence the transfer of tax knowledge.

The Effect of Value-Added Tax Collection Alternatives on Revenue Yield

Robert P. Crum and Bruce H. Lubich


A value-added tax (VAT) has attracted increasing attention from tax policy makers and tax analysts in their search for revenue sources. Using macro data, we estimate the revenue that each of 24 VAT forms would have generated from the nonfinancial corporate sector during 1971-85. Analyses of these estimates: (1) demonstrate that revenue generation substantially depends upon VAT form, (2) reconcile with the micro results of Crum 11 985), (3) suggest that the invoice (accrual) method may speed recession recoveries by reducing cash outflows for companies immediately before economic troughs, (4) indicate that a VAT provides a lower rate and more stable revenue source than the corporate income tax (CIT), and (5) demonstrate that the tax redistribution from a VAT-for-CIT substitution depends on which VAT form is adopted. Implications for tax policy are discussed.

Tax Reform and Charitable Contributions of Appreciated Property

Cherie J. O'Neil, W. Eugene Seago, and G. Rodney Thompson


The Tax Reform Act of 1986 increases the cost of charitable giving by reducing marginal tax rates and imposing an alternative minimum tax on contributions of appreciated property. Prior studies indicate that charitable donations are very sensitive to changes in marginal tax rates; as the after-tax cost of giving increases, the amount of contributions declines. This article demonstrates that the after-tax cost of giving will increase substantially under the new law. Further, imposing the alternative minimum tax on contributions of appreciated property amounts to an unannounced change in tax policy. A proposal to alleviate the harsh consequences of the alternative minimum tax on contributions of appreciated property is suggested.

Homeowner Preferences: The Equity and Revenue Effects of Proposed Changes in the Status Quo

Bethane Jo Pierce


This study examined the equity and revenue effects of proposed changes in the current federal income tax law relating to homeowner preferences. These changes in homeowner preferences have been put forth in the literature as a means of mitigating the inequitable treatment afforded renters compared to homeowners. The 1982 IRS Individual Tax Model File was used to calculate each taxpayer's tax liability under current law and various alternative tax policy options. Equity and revenue effects of various tax policy options were compared with the equity and revenue effects of current law (defined as Tax Reform Act of 1986 law, fully implemented). Horizontal equity effects were measured using weighted average changes in the coefficient of variation. Vertical equity effects were measured using changes in the Suits index. Finally, the revenue impact was compared with current law. Findings suggest that options that limit or eliminate the mortgage interest deduction and/or real property tax deduction would appear to be likely candidates for future policy decisions, as these options are among the few that increase both equity and revenue.

Reference Point Effects In Taxpayer Decision Making

Michael S. Schadewald


A model of individual choice is an important input into many types of tax research. Prior decision research suggests that risk preferences vary with whether the outcomes involved are framed as gains or losses. Prospect theory explains these effects as shifts in the point of reference from which outcomes are evaluated. Two experiments were performed to assess the applicability of the reference point concept to tax reporting decisions. MBA students served as subjects. Manipulations of two potential reference points did not have a significant effect on the subjects' preferences for aggressive tax return positions. Manipulating the reference point implied by the description of a tax reporting problem also did not have a significant effect, except when the potential outcomes were also explicitly labeled as "gains" or "losses." These results cast doubt on the importance of the reference point concept in tax contexts.

An Analysis of the S Corporation Election After the Tax Reform Act of 1986

Victor L. Genez and Susan L. Nordhauser


The Tax Reform Act of 1986 reduced tax rates for corporations and individuals. It also increased the cost of liquidating a corporation because of the repeal of the General Utilities doctrine. This research analyzes mathematically the difference in cost between operating as a regular C corporation and as an S corporation.

The surprising conclusion is that almost all new corporations that are qualified to do so should elect S corporation status. This is true even if the corporate tax rate is below the shareholders' individual tax rate and even it dividends are paid during the life of the corporation.

In general, the only new corporations that ultimately may be better off as C corporations are those that pay tax at a low rate relative to their shareholders and, in addition, will remain in existence for a very long period of time (generally at least ten years or more) or until the death of the shareholder-owners.

The Accounting Doctoral Program with a Concentration in Taxation: A Report of the 1986-87 ATA Committee on Doctoral Program Curricula in Taxation

Edmund Outslay, Valerie C. Milliron,
Patrick J. Wilkie, and Mark A. Wolfson


The charge to this committee was to (1) identify and describe any "common body of knowledge" that should be reflected in the curricula of accounting doctoral programs offering a specialization in taxation, and to (2) determine the characteristics and/or minimum requirements of a doctoral program that describes itself as offering a specialization in taxation.

This report reflects the observations and opinions of the committee on these issues. The primary focus of the report is on the research dimension of the doctoral program. The committee recommends that the primary research focus of the tax doctoral student should be on "empirical-based" research, and we offer a framework for structuring such an orientation in the program. While we recognize the importance of training doctoral students to be effective teachers, we do not provide detailed recommendations on how to address this parameter because it was beyond the scope of the committee's charge. However, we believe that good research is complementary to teaching and that the benefits from research training should enhance teaching activities as well.