JATA - Fall 1997

Volume 19, No. 2

The Effect of Moral Reasoning and Educational Communication on Tax Evasion Intentions

Steven E. Kaplan, Kaye J. Newberry, and Philip M. J. Reckers


This study uses an experiment to examine the effect of moral reasoning and educational communication on tax evasion intentions. Taxpayers were randomly assigned to alternate educational communication, and then responded to four hypothetical tax scenarios. Moral reasoning was measured with the Defining Issues Test. The results indicate that tax evasion intentions are significantly lower for those taxpayers who utilize high moral reasoning in their decision making. The results also support that moral reasoning moderates the effectiveness of certain educational communications. Specifically, it was found that a legal sanctions communication significantly lowers tax evasion intentions for only those taxpayers who utilize low moral reasoning. The findings extend prior tax compliance research and suggest policy implications related to the IRSâ proposed development of educational programs to increase voluntary compliance.

Tax Costs and Nontax Benefits: The Case of Incentive Stock Options

Steven Balsam, Robert Halperin, and Haim Mozes


The Tax Reform Act of 1986 (TRA 86) by causing the highest corporate tax rate for corporations to be higher than the highest individual rate gave corporations a tax incentive to issue Nonqualified Stock Options as opposed to Incentive Stock Options (ISOs). Nevertheless, some firms continue to issue new ISOs, despite the tax cost of doing so. We hypothesize that firms with the greatest investment opportunity sets are most likely to issue ISOs in order to tie employees to the firm. Our empirical results are consistent with this hypothesis. We also show that these firms also use other, less costly mechanisms, such as pension plans and salary deferrals to tie their employees. Consistent with the tax incentive hypotheses, fewer firms in our sample issued ISOs after TRA 86 than before.

The Effect of the Tax Reform Act of 1986 on the Capital Structure of Foreign Subsidiaries

James Kalman Smith


The Tax Reform Act of 1986 (TRA86) changed the interest allocation rules and now require U.S. multinational (MNCs) to allocate a portion of their U.S. interest expense to foreign source income for purposes of calculating their foreign tax credit (FTC). As a result, incentives were created for U.S. MNCs to increase the debt levels of their foreign subsidiaries. I use a large sample of foreign subsidiaries of U.S. MNCs to test the impact of the changes to the interest allocation rules. A second large sample of foreign subsidiaries of non-U.S. MNCs is used as a basis of comparison. The results indicate that U.S. MNCs increase the debt of their foreign subsidiaries after 1986, while non-U.S. MNCs do not increase the debt of their foreign subsidiaries. The increase in debt of the foreign subsidiaries of U.S. MNCs is related to key FTC characteristics of their U.S. parent.

Measuring the Statistical Significance of Differences in Tax Progressivity and Income Inequality

Govind Iyer and Ananth Seetharaman


In applied tax and income distribution studies the predominant practice is to use the Lorenz curve and one or more indexes derived from the Lorenz curve to describe the distributional effects of tax law changes. However, where sample data are used, sampling variation is present. Observed distributional differences across alternative tax systems may, therefore, be attributable to sampling variability. This paper outlines and explains the methodology by which data underlying Lorenz curves can be used for inferential rather than just descriptive purposes. The methodology is demonstrated by applying it to evaluate the effect of the income tax system on income inequality and that of the earned income credit on overall progressivity and income inequality.

Teaching the Introductory Tax Course: A Template of the Federal Income Tax Formula, Taxpayer Activities, and Taxpayer Entities

Patrick J. Wilkie and James C. Young


In this article, we describe an alternative method of teaching introductory taxation that refines the Jones and Duncan (1995) paradigm. These refinements in the conceptual framework are necessary, we believe, in order for it to be successfully implemented. Our alternative method draws upon the research in human information processing to create a three-dimensional framework of taxation. These three dimensions include: (1) the federal income tax (FIT) formula, (2) taxpayer activities, and (3) taxpayer entities. Using this method, we begin by providing a working knowledge of the elements in each dimension. We then introduce the transactions that comprise a taxpayer-activity and describe the general tax rules for those transactions. These general tax rules are then refined by applying the transactions to specific entities. This process is repeated for each of the remaining taxpayer activities. Our experience suggests that this three-dimensional framework enables students to better understand, remember, and apply tax knowledge.

Letter from the President

To ATA Members and Visitors,

The American Taxation Association (ATA) is home to a broad group of members with interests in tax research, policy, practice, and education. We are in a time of transition that includes the ongoing pandemic; both AAA’s and ATA’s Diversity, Equity, and Inclusion initiatives; and the CPA Evolution. I thank our members Kirsten Cook, Diana Falsetta, and Annette Nellen for their service in these endeavors. I also thank Tim Rupert for his service as AAA Director focusing on Segments.

Our last mid-year meeting was virtual and could not have happened without our excellent ATA leadership. Thank you to Jeri Seidman, Mollie Adams, Bridget Stromberg, and their respective committees for their flexibility and tenacity in organizing their portions of the conference...

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Anna Catherine Fowler

In Memoriam,
Anna Catherine Fowler received her BS in accounting from the University of Alabama, after which she practiced for several years as a CPA. After moving to Texas with her husband Jim, she earned her MBA and PhD from the University of Texas at Austin.

She joined the faculty of the business school of the University of Texas in 1977 as the first female tenure track professor hired by the accounting department. She remained at UT until she retired in 2004 as the John Arch White Emeritus Professor in Business.

During Anna’s distinguished academic career, her research and teaching interests focused on estate and gift taxation. She was an active member of the AICPA’s Tax Division and the American Taxation Association, for which she served as 1993-94 president.

In 2002, Anna received the American Taxation Association’s highest honor, the Ray M. Sommerfeld Outstanding Tax Educator Award. She also received the Texas Society of CPA’s Outstanding Educator Award.

Anna and Jim made the most of their retirement years, delighting in travel all over the world. They finally settled in a retirement community in Chapel Hill, North Carolina. Even after Jim’s death in 2019, Anna continued to travel with friends, root for her beloved Alabama football team, and live her life to the fullest. She passed away peacefully on October 19, 2021.

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