American Taxation Association

JATA abstracts - Spring 2004

JATA - Spring 2004

Volume 26, No. 1

The Influence of Biased Tax Research Memoranda on Supervisors' Initial Judgments in the Review Process
John A. Barrick, C. Bryan Cloyd and Brian C. Spilker

Does Representation Matter in IRS Office Audits?
Nancy B. Nichols and John Ellis Price

Local Sales Tax Competition and the Effect on County Governments' Tax Rates and Tax Bases
LeAnn Luna


The Influence of Biased Tax Research Memoranda on Supervisors' Initial Judgments in the Review Process

John A. Barrick, C. Bryan Cloyd and Brian C. Spilker

Abstract

This study experimentally investigates the effects of confirmation bias underlying staff-level tax research on supervisors' initial assessments and recommendations made during the review process for tax research memoranda. The theoretical framework underlying our hypotheses posits that tax professionals strive to make recommendations that meet both accuracy and advocacy objectives. Participants in our study addressed a client scenario in which both objectives could not be met because the client-preferred position did not have a "realistic possibility" of being successfully defended on its merits. In this context, we find that supervisors are more persuaded by an unbiased memo correctly concluding that the client-preferred position is not appropriate than by a biased memo reaching the same conclusion. This result suggests that when tax research memoranda are not consistent with the client advocacy objective, professionals are more persuaded by memoranda that fulfill their accuracy objective. On the other hand, we also find that supervisors are more persuaded by a biased memo incorrectly concluding in favor of the client's preferred position than by a biased memo correctly concluding that the client-preferred position is inappropriate. This result suggests that, when neither memorandum meets the accuracy objective, supervisors are more persuaded by memoranda that offer encouragement that their advocacy objective might be met than by those that do not. Finally, results also indicate that supervisors act to correct confirmation bias by requesting more rework of staff who prepare biased memos than of staff who prepare unbiased memos.  Top


Does Representation Matter in IRS Office Audits?

Nancy B. Nichols and John Ellis Price

Abstract

Tax practitioners often represent clients before the Internal Revenue Service (IRS). It is generally assumed that clients enjoy significant benefits when represented by a tax practitioner during an IRS audit, such as limitations on the final assessment of tax and penalties. To the best of our knowledge, there is no research that directly analyzes the impact of taxpayer representation on IRS audit outcomes because there is no data on whether the taxpayer was represented.

This research provides empirical evidence regarding one of the perceived benefits of representation—a reduction in the final tax assessment by the IRS—and is a first step in determining when an individual should hire a professional representative for an IRS office audit. The results indicate that the final tax assessment is significantly less for taxpayers with representation during an IRS office audit, both in dollars and as a percentage of the potential deficiency.  Top


Local Sales Tax Competition and the Effect on County Governments' Tax Rates and Tax Bases

LeAnn Luna

Abstract

Local governments can try to attract retail sales by keeping sales tax rates low and encouraging residents of other jurisdictions to cross-border shop. This predatory behavior must be balanced against the governments' desire to raise revenues. This study examines the extent to which local governments compete and attempt to limit cross-border shopping by changing sales tax rates. I estimate two equations, local sales tax rate and local sales tax base, in the short and long run. The local sales tax rate equation represents the county's tax policy choices and the sales tax base equation represents the demand function for the county businesses' taxable goods and services. The regression results show local governments do consider the sales tax rates of neighboring counties in setting their own rates in both the short and long run. The study also provides evidence that the sales tax rates of the home and competing counties will affect the sales tax base of the home county because shoppers will cross borders to take advantage of differences in tax rates between counties.  Top

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