JATA - Spring 1997

Volume 19, No. 1

The Relationship Between Income Tax Changes and Stock Market Trading Volume

Robert C. Ricketts and Richard M. Walter

Abstract

This paper reports the results of a study designed to investigate the long-term reactions of investors to changes in the taxation of capital gains imposed by the 1981 and 1986 tax acts. Trading volume patterns are analyzed for portfolios of depreciated and appreciated stocks. The results are generally consistent with expectations based on a tax-induced model of investor trading behavior.

Specifically, the results indicate that the 1981 tax act, which decreased the tax cost of selling appreciated securities by reducing the maximum tax rate applicable to long-term capital gains, was followed by a sustained increase in trading volume for those stocks. The 1981 tax act increased the tax cost of selling loss stocks. After a period of adjustment following the enactment date, loss-stock trading volume declined. In contrast, the 1986 tax act decreased the cost of selling depreciated securities and appears to have stimulated trading volume in those securities over a sustained period. The impact on trading volume for gain stocks, however, appears to have been limited to a short-term reaction during the latter part of 1986.


A Study of the Effect of Taxpayer Risk Perceptions on Ambiguous Compliance Decisions

Anne L. Christensen and Peggy A. Hite

Abstract

The purpose of this study is to determine if taxpayers' risk perceptions and subsequent reporting decisions are influenced by the type of reporting decision (income or deduction), framing effects (win or lose), and level of certainty (a 33, 55, or 75 percent chance of withstanding an IRS challenge). Over 400 taxpayers completed and returned a mail survey that requested the respondents to decide how they would report either an ambiguous income or an ambiguous deduction item. The results indicate that when taxpayers' risk propensities are considered, taxpayers' risk perceptions differ for ambiguous income and deduction items and their reporting decisions are influenced by those differences. In addition, taxpayers' decisions are influenced by level of certainty but not by framing effects. The respondents indicated a greater willingness to take aggressive positions for an ambiguous deduction than for ambiguous income. They also took significantly more aggressive positions when the level of certainty increased from 33 to 55 percent. There was no significant difference in decisions when the level of certainty increased from 55 to 75 percent.


Experimental Evidence on the Effects of Tax Incentives on Risky Security Prices

Susan E. Anderson and Janet Butler

Abstract

The price of an asset is influenced by both its riskiness and its tax treatment. This study examines the effects of risk and tax treatment on asset prices by conducting an experimental market. Two different forms of tax incentives are examined: preferential treatment of capital gains and an unlimited deduction for capital losses. The study found that securities with favorable t ax treatment were higher priced than equally risky, non-tax-favored securities. There was no difference in the price of a high-risk, tax-favored security and a lower-risk, fully-taxable (benchmark) security when the tax-favored security received only one tax benefit. Risky securities receiving favorable capital gain and loss treatment were higher priced than the benchmark security. However, these results are dependent upon the actual magnitudes of the tax rates studied.


Simplification of Schedule C for Sole Proprietorships: Results from a Survey of Tax Practitioners

Cherie J. O'Neil, Donald P. Samelson, and Michael Harkness

Abstract

This study extends the work of Long and Swingen (1987) and Carnes and Cuccia (1996) by examining tax practitioner perceptions of tax complexity as it relates to the Schedule C.   It is based on a survey of tax practitioners conducted by members of the Complexity Reduction Committee of the American Taxation Association.  According to respondents, the major factors contributing to unnecessary complexity for the self-employed are the rules regarding auto expense, depreciation expense and the office-in-home deduction.   Practitioners express support for simplifying the computation and reporting of these deductions.  They do not view Schedule C-EZ as an improvement over Schedule C and do not make extensive use of it.  The report of the committee, based upon this study, is presented in appendix A.


Integrating Tax History Into The Introductory Tax Course

William D. Samson

Abstract

This paper urges that tax history be included as part of the introductory tax course because history helps explain the complexity of much of the current law. History also can set the stage for understanding how and why the tax law may evolve in response to future changes in taxpayer behavior, in society, in economic conditions, or in political circumstances. Because textbook coverage of tax history is uneven at best, instructors need to consider integrating history into lectures or out-of-class activities. To assist, this paper identifies sources of tax history and links these resources to topics typically covered in the introductory tax course. Methods of combining history with other activities are described.

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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