Tax Preparation Software Research Articles

Computational Legal Studies Comes of Age

Computational analysis techniques are transforming empirical legal scholarship. Two paradigms have emerged: law-as-code, which seeks to represent legal rules in a logical, executable format; and law-as-data, which leverages quantitative analysis of legal texts to reveal patterns and insights. This article surveys these approaches, emphasizing recent developments in large language models and generative artificial intelligence (AI). Law-as-code systems have enabled applications from tax preparation software to smart contracts, but realizing the vision of fully computational law has proven challenging. Law-as-data techniques like natural language processing and machine learning have charted the semantic relationship between courts and illuminated changes in judicial culture. Generative models showcase AI's explosive progress, with impressive feats like passing the U.S. bar example, but they also highlight limitations like factual inaccuracy and interpretability issues. Hybrid approaches integrating computational law, data science, and AI offer a promising research direction. As these tools spread, legal scholars can analyze more legal data than ever before, but they must remain cognizant of challenges like biased or low-quality data and linguistic/cultural limitations. Used judiciously alongside traditional methods, computational analysis has the potential to revolutionize empirical legal studies.

Does choice matter? The effect of filing method autonomy on taxpayer aggressiveness in a pre-filled tax return system

While pre-filled tax filing systems are the norm in many European countries, individuals in the U.S. are accustomed to the autonomy and control associated with preparing their own tax return. Taking that autonomy away by requiring individuals to use a pre-filled system could have negative consequences. Prior research has shown that implementing a pre-filled system in the U.S. may decrease compliance. Building on prior literature, results of an experiment manipulating filing method (traditional vs. pre-filled) and autonomy (present vs. absent) indicate that taxpayers who are given autonomy to choose the pre-filled system report significantly less aggressively than those forced to use it. Given that the Internal Revenue Service (IRS) revoked its promise not to compete with tax preparation software companies—opening the door for an IRS-created pre-filled filing system—this study has major implications for policymakers. Namely, policymakers would have to decide whether to make a pre-filled tax return system voluntary or mandatory. This study sheds light on the consequences of this policy decision.

The impact of online tax community advice on individual taxpayer decision making

In this study, we examine the impact of advice shared on an online tax community and taxpayer decision making. Online tax communities are linked to major tax preparation software and provide a way for taxpayers to ask unique questions and receive responses. While online communities are intended to facilitate the transmission of unbiased advice between individual taxpayers, the quality, content, and source of responses can greatly vary. Drawing on the predictions of expectancy violations theory (EVT), we investigate two facets of provided advice: response provider expertise and response language concreteness. Our results indicate that taxpayers report more conservatively (more aggressively) when presented with advice from a deemed tax expert if concrete language (abstract language) is used. Further, we find that taxpayers' perceived usefulness of the response mediates this relationship. Collectively, we contribute to EVT and provide evidence on the recognition and use of online tax community responses.

Tax Software versus Paid Preparers: Motivations and Predictors for the Mode of Tax Preparation Assistance

SYNOPSISIn recent years, the number of taxpayers using tax preparation software has increased substantially; however, little is known about how these taxpayers differ from those using a paid professional. We gather data from a sample of taxpayers who used either tax software or a paid professional to examine their motivations for choosing their mode of tax preparation assistance. We find software users rated the importance of preparing the most accurate return significantly lower than the paid professional groups, while they rated the goal of minimizing the cost of preparation significantly higher in importance. We draw upon the Unified Theory of Acceptance and Use of Technology model to examine variables that predict the mode of tax preparation assistance. Results suggest measures representing performance expectancy, effort expectancy, and social influence are significant in distinguishing taxpayers using tax software from those using a paid preparer.

Tax Complexity and Technology

The federal income tax code has become increasingly complex over time with the implication that many taxpayers no longer understand the connection between their life decisions and their taxes. Some commentators have suggested that increasing computational complexity may be attributable in part to the proliferation of tax preparation software that renders such complexity manageable at filing time, but otherwise does nothing to mitigate the “black box” nature of the tax system. While such complexity and opacity undercut explicit incentives embedded in the Code, make planning more difficult, and undermine political accountability for taxes, they may also reduce the inefficient distortion or deadweight loss of the income tax, particularly with respect to higher-income taxpayers. This Article argues that technology represents a potential response to tax complexity and opacity as well as a contributing factor. It argues that tax planning software can and likely will be used to restore “functional transparency” to the Code, for good or bad, alerting taxpayers to explicit incentives, allowing taxpayers to easily determine the tax consequences of their life decisions, and providing a means for improving fiscal citizenship, but also highlighting tax burdens in such a way as to increase deadweight loss. This Article also makes the case for government provision of planning software targeted at lower-income taxpayers in order to level the planning playing field and improve the take-up of tax incentives by this population, while avoiding facilitating social welfare reducing tax planning by higher-income taxpayers.

Does Religion Have Relevance for Individual Tax Behavior in the U.S.? Evidence from Online Search and Chatter Activity

Using individual tax behavior as a research setting, this paper seeks to understand whether and how religion plays a role in people’s information search and dissemination behavior in a non-religious context. Google search data show that the tax season in the U.S. is marked by a notably higher search interest in religious teachings on taxes. However, despite the commonly held view that religion and rationality are often at odds, we also find that people’s online search interest in tax loss strategies (which help minimize taxable income) and tendency to ask “why” questions about taxes are greater in states with higher religiosity. In parallel, users from highly versus less religious states include more interrogatives and less certainty words in their tax-related tweets posted during the 2019 U.S. federal government shutdown. Further, when giving advice about tax preparation software, people living in highly versus less religious states use certainty words less extensively.

Your biggest refund, guaranteed? Internet access, tax filing method, and reported tax liability

The fraction of US individual income tax returns filed as hand-prepared paper returns fell from 31 to 15% between 1999 and 2004, reflecting the spread of high-speed Internet and increased use of tax preparation software. I use zip code-level Internal Revenue Service tax data from 1998 to 2007 and Federal Communications Commission Internet service provider data to examine the effect of high-speed Internet availability on tax reporting behavior. Differences-in-differences results show increased rates of itemizing, higher total value of itemized deductions, and lower tax-to-income ratios after high-speed Internet becomes available. I differentiate between access in the tax year and the filing year and show that the tax reporting effects are driven by filing year availability and that filing year Internet availability also positively predicts electronic filing. I use instrumental variables methods to explore the relationship between Internet availability-induced electronic filing on tax reporting behavior and find suggestive evidence that e-filing driven by Internet access increased itemizing rates and total value itemized and lowered tax-to-income ratios. The results suggest changes in tax filing method driven by increased computer use and Internet access helped taxpayers identify relevant deductions and credits and lowered reported tax liability.

Endogenous audits, uncertainty, and taxpayer assistance services: Theory and experiments

In recent years there has been a sharp rise in the information available to individual income taxpayers, such as through tax preparation software provided by third parties and support available by tax agencies, but the effects of this information on tax reporting are not well understood. Within a setting characterized by an endogenous audit process and taxpayer uncertainty, this study uses theory and laboratory experiments to investigate the effects of taxpayer assistance services that better inform taxpayers about their tax liability and the audit process. The endogenous audit rule we study is simple, yet relative to existing work is more likely to characterize the actual incentives facing taxpayers. Among our findings, and in contrast to the case of purely random audits, in theory the effect of providing more accurate information on tax liability is ambiguous, and we find support empirically for increased tax underreporting even in a setting where theory predicts the opposite. This unanticipated result is mitigated when services provide better information on both liability and the audit process, suggesting that audit information may be more salient to participants.

The Effect of Tax Preparation Software on Tax Compliance: A Research Note

ABSTRACTTax software is commonly used in the preparation of U.S. federal and state income tax returns. A common feature of tax return preparation software is the prepayment-position status bar, which automatically calculates an updated refund/tax-due position. This paper examines whether the prepayment-position status bar, influences taxpayer decision making. This study utilizes a 2 × 2 experimental design, manipulating the taxpayers' prepayment position (refund/tax-due) and manipulating whether the prepayment-position status bar is present or absent. Using experienced taxpayers as study participants, the results of the experiment show that taxpayers are more aggressive when they are in a tax-due position compared to a refund position and that this effect is exaggerated when the tax software contains a prepayment-position status bar.

Income Tax Simplification Proposals

This paper proposes various moves for simplification of the task of computing the tax base under the individual income tax, with a principal view of making the income tax capable of compliance by “ordinary” individuals without the aid of tax preparation software or outside assistance. Another aim of simplification is to render taxpayers’ perception of it as being internally coherent, and not as a Christmas tree showering an array of goodies (and baddies) to the highest (and lowest) bidders. Simplification is offered here as a “good government” project.Some of the proposals are tied to commonly-circulated “tax reform” proposals, and others are not. The proposals are too numerous to list in this abstract, but include the following: (1) simplifying the computation of taxable income, (2) reconstituting low-income tax credits, (3) eliminating various personal deductions while also eliminating various back-handed itemized deduction cut-down rules, (4) adding various rules for the purpose of eliminating fact-intensive controversies, (5) simplifying accounting for residence-related income production (mainly by eliminating depreciation), (6) eliminating spurious COD income, (7) eliminating the distinction between alimony and child support, (8) simplifying (cash) accounting for small business, (9) mandating GAAP accounting for C corporations, (10) simplifying the income taxation of certain estates, (11) treating all inter vivos trusts as grantor trusts, (12) proposing a portfolio approach to publicly traded investments, (13) proposing a single-rate system for all individual taxpayers, (14) noting various ways of simplifying the capital gains apparatus, (15) taxing all personal injury recoveries, (16) simplifying and rationalizing the law relating to deferred compensation, (17) requiring pass-through taxation of nonpublic business entities, (18) disallowing the interest deduction for C corporations, (19) repealing the E & P apparatus, and (20) eliminating § 911, as well as proposing numerous items of a more technical nature.

The Coming Golden Age of Disruptive Innovation in Health Care

The Coming Golden Age of Disruptive Innovation in Health Care

In This Issue

In This Issue

Toward multi-dimensional trust: exploring antecedents to trust in a complex domain

This research proposes a new multi-dimension trust model and develops a typology of antecedents to trust in the context of high domain complexity. Using open-ended questions, we explore what users think would create, promote or manage trust. We argue that trust affects individuals' intention to use tax preparation software and electronic tax filing. This is an interesting research setting because of 1) the complexity of the tax law; 2) the privacy of the subject matter; 3) the omnipresence of the issue; 4) the current promotion of e-filing by the Internal Revenue Service; 5) individual taxpayers' ambivalence or negative attitude toward taxes and the government. We propose that when the information system serves as surrogate for a domain expert, multi-dimensional trust and several novel antecedents to trust, such as power and control based, reparative and system-quality based antecedents, should be considered as potential determinants of use.

Tax software acceptance: how do professional users differ from novices?

This paper explores how performance expectations, anticipated learning curve, social influences, privacy concerns, and risk perceptions affect taxpayers' intention to use tax preparation software. We contribute to the extensive technology acceptance literature in three ways. First, we investigate whether perception and acceptance of tax software is different for professional accountants ('experts') compared to the general public ('novices'). Second, we assess the unified theory of acceptance and use of technology (UTAUT) model in the novel context of individual tax preparation and confirm the theory's ability to explain technology use outside the 'traditional' environment of business organisations. Third, we include constructs related to privacy and risk and test this extension of the technology acceptance model. Results indicate dissimilarities between the two subject groups and suggest the technology acceptance model may not be equally applicable to experts and novices.

A Hierarchical Framework for Organizing a Software Development Process

Every year, companies that produce commercial tax preparation software struggle with thousands of state and federal changes to tax laws and forms. Three competitors dominate the market with its short selling season, and release delays slash profits. Tax authorities issue updates August–December, and all changes must be processed and incorporated before year end. Systematic resource allocation and process management are crucial yet problematic due to the volume and complexity of changes, brief production time frame, and feedback loops for bug resolution. A leading tax software provider asked us to propose systematic approaches for managing process flow and staffing development stages with the goal of releasing the new version on time at minimum cost. To that end, we developed deterministic models that partitioned tax forms into development groups and determined staffing levels for each group. Partitioning forms into groups simplified workflow management and staffing decisions. To provide a range of resource configurations, we used two modeling approaches. Numerical experiments showed that our models capture the salient features of the process and that our heuristics perform well. Implementing our models reduced company overtime hours by 31% and total workforce cost by 13%.

A Hierarchical Framework for Organizing a Software Development Process

Every year, companies that produce consumer tax preparation software struggle with a massive amount of work imposed by thousands of state and federal changes to tax laws and forms. With their release not even beginning before August, these changes still must be processed and incorporated into the application by mid-December. Three companies dominate this competitive market with its short selling season so that release delays create significant losses. Though systematic resource allocation and process management are crucial, the volume and complexity of the changes, the brief timeframe to implement them, and feedback loops built into the system for error resolution make it extremely difficult to analyze the process. One of the leading tax software providers tasked us with developing systematic approaches for managing the process flow and staffing each stage so that the company met the deadline at the lowest cost. Based on the characteristics of the process, we develop deterministic models that partition tax forms into groups and determine the staffing levels for each group. Partitioning the development process into groups has the benefit of simplifying workflow management and making it easier to find staffing levels. To provide the company with a range of resource configurations, we use two modeling approaches to obtain lower and upper bounds on the number of resources at each stage. Numerical experiments indicate that the models successfully capture the features of the process and the heuristics perform well. Implementing our models at the company has resulted in 31% reduction in overtime and 13% reduction in total resource costs.

Treatment Cost Analysis Tool (TCAT) for estimating costs of outpatient treatment services

A Microsoft ® Excel-based workbook designed for research analysts to use in a national study was retooled for treatment program directors and financial officers to allocate, analyze, and estimate outpatient treatment costs in the U.S. This instrument can also be used as a planning and management tool to optimize resources and forecast the impact of future changes in staffing, client flow, program design, and other resources. The Treatment Cost Analysis Tool (TCAT) automatically provides feedback and generates summaries and charts using comparative data from a national sample of non-methadone outpatient providers. TCAT is being used by program staff to capture and allocate both economic and accounting costs, and outpatient service costs are reported for a sample of 70 programs. Costs for an episode of treatment in regular, intensive, and mixed types of outpatient treatment were $882, $1310, and $1381 respectively (based on 20% trimmed means and 2006 dollars). An hour of counseling cost $64 in regular, $85 intensive, and $86 mixed. Group counseling hourly costs per client were $8, $11, and $10 respectively for regular, intensive, and mixed. Future directions include use of a web-based interview version, much like some of the commercially available tax preparation software tools, and extensions for use in other modalities of treatment.

The Impact of Embedded Intelligent Agents on Tax-Reporting Decisions

The use of tax preparation software to meet federal tax-reporting requirements has dramatically increased in the last decade. The general assumption is that such software improves the accuracy of taxpayers' returns, in part because embedded intelligent agents identify potential form errors, provide interpretations of tax laws, and highlight potential IRS audit flags. However, it is possible that these intelligent agents may have other, unintended effects as well. In particular, it is likely that the audit warnings embedded in many of these products may cause many taxpayers to take more conservative positions in their tax returns. Taxpayers most likely to be affected in this way are those who are relatively less knowledgeable about tax laws and reporting requirements. This study presents the results of a computerized tax experiment that are consistent with the above expectations. For novice taxpayers, the audit flags embedded in the software led to conservative adjustments that are rather extreme, resulting in significantly higher reported taxable incomes relative to their counterparts who did not have access to the embedded audit flags. Knowledgeable taxpayers, in contrast, maintained essentially the same level of taxable income and corresponding tax liability despite software warnings of potential audit.

Do tax decision support systems affect the accuracy of tax compliance decisions?

Tax complexity has increased over the years as laws and regulations have been consistently added to the existing code sections. This complexity directly affects taxpayer compliance; complexity reduces taxpayer compliance. Along with the rise in complexity has come an increased use of tax preparation software such as TurboTax to combat the rising intricacy. This software is designed to help users properly complete a tax return and, as a result, increase taxpayer compliance. These software packages represent sophisticated tax decision support systems (TDSS) used by both professional tax preparers and individual taxpayers alike. While the availability and use has risen dramatically over the past few years, little research has been conducted to determine the impact of TDSS on tax preparers' decisions. The purpose of this study is to examine whether tax preparers manually preparing a tax return make the same decisions as tax preparers aided by a TDSS. The Theory of Technology Dominance suggests (1) that less experienced users will not be able to adequately use the TDSS and will make inferior decisions when compared to more experienced users and (2) that more experienced decision-makers using a TDSS will make better decisions than their counterparts preparing a return manually. The results support the propositions of the theory and show that less experienced tax preparers using a TDSS make inferior decisions when compared to more experienced tax preparers. The less experienced tax preparers report higher taxable income and higher tax liability. The results also indicate that using a TDSS can help both experienced and novice tax preparers make better decisions even though the novices cannot perform at the level of experienced tax preparers. This study concludes tax compliance is improved with the use of a TDSS.