American Taxation Association
JATA - Fall 1996
Volume 18, No. 2
A Comparison of Tax Professionals' Individual
and Group Decisions When Resolving Ambiguous Tax Questions
The Effect of Tax Authority
Behavior on Taxpayer Compliance: A Procedural Justice Approach
An Analysis of the Effect of
Tax Complexity and its Perceived Justification on Equity Judgements
U.S. Tax Policy and the Location
Gregory A. Carnes, Gordon B. Harwood, and Roby B. Sawyers
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 probabilities.
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 realistic task.
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 our conclusions. Top
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. Top
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. Top
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 RSTRs. Top
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. Top