American Taxation Association

JATA abstracts - Spring 2003

JATA - Spring 2003

Volume 25, No. 1

Implicit Taxes: Evidence from Taxable, AMT, and Tax-Exempt State and Local Government Bond Yields
T. J. Atwood

Using Declarative Knowledge to Improve Information Search Performance
Michael L. Roberts and Robert H. Ashton

Embedded Options and Tax Decisions: A Reconsideration of the Traditional vs. Roth IRA Decision
David S. Hulse

Similarity and Precedent in Tax Authority Judgment
Jon S. Davis and J. David Mason

The Impact of Floors and Phase-Outs on Taxpayers' Decisions and Understanding of Marginal Tax Rates
Timothy J. Rupert, Louise E. Single and Arnold M. Wright

Tax-Reporting Implications of Asymmetric Treatment: Direct Subsidies vs. Tax Deductions
Cynthia C. Vines and Martha L. Wartick

The Journal of the American Taxation Association 1979–2000: Content, Participation, and Citation Analyses
Paul D. Hutchison and Craig G. White


Implicit Taxes: Evidence from Taxable, AMT, and Tax-Exempt State and Local Government Bond Yields

T. J. Atwood

Abstract

Pretax yields of state and local government (SALG) bonds are examined for evidence of implicit taxes. The sample includes fully taxable bonds, alternative minimum tax (AMT) bonds (tax-exempt but a tax preference for alternative minimum tax purposes), and tax-exempt bonds (tax-exempt and not a tax preference for AMT purposes). The average risk-adjusted pretax yield on AMT bonds is higher than that of tax-exempt bonds and lower than that of taxable bonds. Implicit taxes are estimated at 25.23 to 29.68 percent for AMT bonds and 33.87 to 35.27 percent for tax-exempt bonds. Results indicate that asset prices are affected by the AMT system and that marginal investors in AMT bonds assess a positive probability (between 28 and 45 percent) of being subject to the AMT. Estimated implicit tax rates on longer-term tax-exempt bonds are higher when yields are compared to those of taxable SALG bonds rather than taxable U.S. Treasury securities.  Top


Using Declarative Knowledge to Improve Information Search Performance

Michael L. Roberts and Robert H. Ashton

Abstract

Knowledge acquisition theory holds that superior judgment/decision-making performance depends on procedural knowledge, which, in turn, results from experience (practice and feedback). This research demonstrates that, under certain conditions, performance can be improved by exposure to declarative knowledge alone, without costly practice and feedback. Practicing tax accountants and graduate tax students participated in a computer-interactive study to improve tax research performance. Using a pretest-posttest design, knowledge and performance were measured prior to, and after, a treatment group (but not a control group) was exposed to a declarative knowledge intervention intended to enhance their knowledge of the content and structure of the Internal Revenue Code. Comparison of the treatment and control groups on posttest knowledge and posttest performance using commercial electronic tax research systems confirmed that the intervention was effective in improving both efficiency and effectiveness in research tasks. Implications for theory and future research are explored.  Top


Embedded Options and Tax Decisions: A Reconsideration of the Traditional vs. Roth IRA Decision

David S. Hulse

Abstract

Embedded options arise in many tax-related decisions because of the ability to subsequently alter one's choices in response to changing conditions. This article analyzes one type of embedded option that is especially amenable to being modeled and that is of widespread interest: the decision to contribute to a traditional or Roth IRA, where the embedded option arises from the opportunity to subsequently roll over a traditional IRA to a Roth IRA. The results show that the alternative with which the embedded option is associated (i.e., a traditional IRA contribution) might be incorrectly rejected when the option is ignored.  Top


Similarity and Precedent in Tax Authority Judgment

Jon S. Davis and J. David Mason

Abstract

Tax professionals often examine past court decisions and administrative rulings in an effort to find precedent for the treatment of a specific transaction. We formulate and test a psychological model that describes how professionals evaluate precedent. We also test predictions made by the model about the influence of certain environmental variables on tax authority judgment. Results indicate that tax professionals' judgments regarding the presence of authority for a tax position are significantly related to judged similarity of precedent. However, contrary to requirements in the Regulations and principles of jurisprudence, only common features (and not distinctive features) impact similarity judgments and subsequent authority judgments. In addition, the direction of comparison and the relative amount of distinctive information known about the precedent and client case are observed to impact judgment. We also find that taxpayer advocacy influences professionals' views of both similarity and authority. These results provide valuable insights into the tax authority judgment process, and contribute theoretical rigor by extending a formal psychological model of similarity judgment to the tax setting.  Top


The Impact of Floors and Phase-Outs on Taxpayers' Decisions and Understanding of Marginal Tax Rates

Timothy J. Rupert, Louise E. Single and Arnold M. Wright

Abstract

Tax provisions that reduce deductions and credits by imposing floors and phase-outs have become an increasingly popular tool used by Congress. However, these provisions also obscure the marginal tax rate, thereby potentially impairing the ability of taxpayers to make optimal decisions.

We investigate the effects of floors and phase-outs on taxpayers' ability to determine their correct marginal tax rates and how this may affect tax-rate-dependent investment decisions. To investigate these potential effects we created an experimental setting in which taxpayers (89 M.B.A. students) were asked to maximize their after-tax income by choosing between a taxable and nontaxable bond. Each participant was assigned to one of three experimental tax systems: low complexity with no floors or phase-outs, medium complexity with one floor, and high complexity with both a floor and phase-out. The effective marginal tax rate was the same in each condition. The results indicate that decision performance was significantly better for participants facing the low complexity system than those in the medium or high complexity systems.  Top


Tax-Reporting Implications of Asymmetric Treatment: Direct Subsidies vs. Tax Deductions

Cynthia C. Vines and Martha L. Wartick

Abstract

The Treasury Department has criticized use of the federal income tax system to deliver indirect subsidies to taxpayers in the form of tax deductions, and recommended that all such deductions be eliminated. It recognized, however, that it would be necessary to replace some tax deductions with direct subsidies. Using an experiment, we examined whether the form of the subsidy (tax deduction or direct subsidy) affects tax reporting. Despite the economic equivalence of the two forms of subsidy, we found that taxpayers who are disadvantaged by not receiving a direct subsidy reported more income than taxpayers disadvantaged by not receiving a tax deduction.  Top


The Journal of the American Taxation Association 1979–2000: Content, Participation, and Citation Analyses

Paul D. Hutchison and Craig G. White

Abstract

This study uses three databases to identify and discuss trends within The Journal of the American Taxation Association (JATA) for the 1979 through 2000 time period. This research reports on institutional involvement of the authors publishing in JATA and examines the extent of citations of JATA articles within the journal itself and in other academic, accounting journals. Methodologies utilized are content, participation, and citation analyses.

A review of the data suggests that JATA went through a major shift in emphasis during the late 1980s and early 1990s. This shift brought a narrowing of focus on tax topics and research methodologies consistent with the Scholes and Wolfson paradigm of tax research. In addition, participation in JATA shifted more toward Assistant Professors, although this gap has begun to close in recent years.  Top

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