Tax Preparation Research Articles

Tax services, consequence severity, and jurors' assessment of auditor liability

Purpose – The purpose of this research is to determine whether the type of tax services provided by a public accounting firm to its audit client and the consequence severity of an audit failure impact jurors' assessment of audit quality and auditor liability. Design/methodology/approach – The authors administer a court case to 168 jurors manipulating three levels of tax services provided to an audit client (none, tax preparation, and aggressive tax planning services); two levels of consequence severity of the alleged audit failure, observing the impact on jurors' assessment of audit quality, auditor responsibility for audit failure; and damages awarded the plaintiff. Findings – Consistent with recent US regulations, jurors perceive the quality of the audit to be lower when auditors provide aggressive tax planning services, but not for tax preparation services. Damages are greater when auditors provide aggressive tax planning services across both levels of consequence severity. Research limitations/implications – The results indicate that the type of tax services provided may impact jurors' views of audit quality and damage assessments against auditors. The questionnaire uses previously validated measures, but the results may not be generalizable to jurors in all jurisdictions. Practical implications – Though empirical evidence is mixed at best about the impact of auditors providing non-audit services on auditor independence in fact, auditor independence in appearance, and thus audit quality, such impacts may affect the way jurors perceive the situation. Originality/value – The study directly tests the implications for auditor liability of new restrictions on tax services and more accurately measures the impact of consequence severity, using actual jurors.

Analysis and Sentiment Detection in Online Reviews of Tax Professionals: A Comparison of Three Software Packages

ABSTRACTThis study analyzes the “tax talk” in online client reviews of tax preparers, and evaluates off-the-shelf (SentiStrength, LIWC2007, and DICTION 6.0) and customized software packages' detection of sentiment in these reviews. Compared to human-coded sentiment, three off-the-shelf programs poorly assess client sentiment. We adapted two software packages, SentiStrength and LIWC2007, to “tax talk” by splitting the sample into learning and holdout segments (n = 50 each). Results for SentiStrength with a customized dictionary and keywords evidenced high validity. The results suggest that client reviews of tax preparers contain unique taxation language.Data Availability: Data used in this study are available from the corresponding author upon request.

Charitable Donations: Feeling Good but Hardly Worth It

Our paper focuses on the perceived benefits of tax deduction associated with charitable donation from an individual’s viewpoint. After analyzing four average cases of taxpayers from various income levels and after dividing them as home owners or renters, we conclude that a taxpayer is more likely to receive the benefit of a charitable deduction if the taxpayer also owns a home which is secured by a mortgage. The tax benefit is defined as the dollar amount of tax that is reduced by donating to charitable foundations. We look at the tax benefit as the savings derived from the charitable contribution in excess of the standard deduction. For any amount below the standard deduction, there is no direct tax saving generated from donating. We conclude by discussing the advice the donors, their financial advisers and tax consultants can take from this exercise. If the donor is thinking about giving to charity in the hope of saving taxes, he/she needs to take a close look at their income and standard versus itemized deductions available to them. Since lower income individuals may rely more on cheaper tax services, the tax preparation companies like H & R Block need to make their clients aware of more effective ways to save on taxes. Taxpayers who reside in major cities and generally rent need to pay even closer attention to their tax status.

“Temporary” Tax Provisions and Uncertainty: Evidence from a Survey of Professional Tax Preparers

INTRODUCTION Toward the end of 2012, the popular press was awash with reports about the ‘‘fiscal cliff’’ and the efforts to avert it. A major aspect of this ‘‘cliff’’ was the expiration of many temporary tax provisions. Most of these tax laws had—temporarily?—reduced taxes for individuals and businesses. Thus, some politicians, lobbyists, and tax experts believed that they were contributing to the growing national deficit. However, for most of the expiring provisions, this was hardly the first time they faced expiration. Some have been extended so many times that taxpayers could be excused for believing they were permanent aspects of the tax code. During November of 2012, we conducted a comprehensive survey that asked Certified Public Accountants (‘‘CPAs’’) and other tax professionals to describe their opinions about the continuance of ‘‘temporary’’ provisions in the tax code. Our objective was to see if the multiple extensions of many of these temporary provisions have led CPAs (and their clients) to conclude that these provisions are to be treated as if permanent. Further, we wanted to know if the tax professionals’ opinion on these tax laws affects the advice they give to their clients. We find that in November of 2012, professionals, on average, believed that many provisions would be temporarily extended, but only few made permanent. This finding is not substantially different for responses received before versus after the 2012 elections (November 6, 2012). Since its last major overhaul in 1986, the Internal Revenue Code (‘‘IRC,’’ ‘‘tax code,’’ or ‘‘Code’’) has increasingly taken on a vast array of temporary provisions. Congress passed some of these provisions as temporary because they filled a need that was seen as temporary (such as an economic stimulus during an economic downturn). Other tax laws are, or were, temporary because there was no bipartisan support for a more permanent tax code change (such as the Bush era tax rate changes and the elimination of the estate tax for the year 2010 with a ‘‘sunset’’ provision). Regardless of the reason why these provisions were adopted into the Code ‘‘temporarily,’’ lawmakers have extended many of them multiple times. Furthermore, the Code includes various sections that tax professionals and politicians generally acknowledge as being outdated (such as the alternative minimum tax, ‘‘AMT’’) or in need of inflation adjustment, but without bipartisan

THE AIA'S SPECIAL BULLETIN SERIES AND ITS EARLY GUIDANCE ON TAX ISSUES RELATED TO DEPRECIATION, 1920–1929

ABSTRACT When the final state ratified the 16th Amendment to the U.S. Constitution in 1913, levying taxes directly on individual incomes became a reality and opened up expanded taxation on businesses. For example, the supporting legislation allowed for the deduction of wear and tear on equipment as a business expense based on the service lives. Unfortunately for the tax preparer, there was no clear meaning of wear and tear and the interpretation of the of service lives in the legislation. With little or no guidance to CPA tax preparers and their clients, it was inevitable that Bureau of Internal Revenue examiners would question returns with such deductions. To help its members to understand better, the new law and the ever-increasing complexity of accounting issues related to it, the American Institute of Accountants began to publish the Special Bulletin Series in January 1920. Many of the answers present in the Bulletins between 1920 and 1929 solved accounting and tax problems in ways still used nearly a century later.

One Hypothesis about the Decline and Fall of ACORN

After 38 years of longevity (1970 to 2008), including huge growth over its last decade, in 2008 and 2009 the Association of Community Organizations for Reform Now (ACORN) was rocked by an embezzlement scandal and two controversies and declined precipitously. By the spring of 2010, all city and statewide ACORN operations had either disaffiliated from the national organization or collapsed altogether, and in November 2010 ACORN filed for bankruptcy. Because ACORN was widely considered the nation's largest and most powerful group organizing the poor, the organization's breathtakingly swift destruction warrants analysis. This commentary analyzes one hypothesis that might have contributed to ACORN's vulnerability to smear campaigns: the organization's long-time practice of combining direct action organizing with individual service provision. THE IRONY OF ACORN'S RAPID DEMISE In early 2008, by most empirical measures of organizing strength, ACORN appeared to be a strong and powerful community organization. Over the preceding 10 years, ACORN had been instrumental in numerous campaigns and victories on a wide range of issues such as winning living wage ordinances (Luce, 2009), increasing the minimum wage (Atlas & Dreier, 2006), fighting predatory lending practices of major financial institutions (Hurd, Donner, & Phillips, 2004), winning a guarantee of affordable housing in the Brooklyn Atlantic Yards mega-development (Atlas, 2009) among dozens of other neighborhood, statewide and national victories. ACORN Housing was helping over 6,000 moderate-income families per year purchase their first homes. In 2008 ACORN Service Centers filed income taxes at no charge for over 50,000 people, resulting in over $65 million dollars in Earned Income Tax Credit/Child Tax Credit returns to low-income families (Rathke, 2009). ACORN was considered the only community organization in the United States that had the ability to coordinate campaigns from the neighborhood to cities and states, all the way up to national policies and corporate campaigns (Dreier, 2009). An independent study by Ranghelli (2006) of the National Center for Responsible Philanthropy, using conservative assumptions, estimated that ACORN campaign victories and services over the 10-year period between 1995 and 2004 resulted in over $15 billion of direct economic development for low- and moderate-income ramifies. According to ACORN's former Chief Organizer Wade Rathke (2009), by 2005 ACORN's combined operations (organizing, housing and tax preparation services, research, and voter registration) employed over 1,000 people, in 85 offices; serviced 400,000 dues-paying members; and raised and spent around $100 million dollars a year. It is beyond the scope of this commentary to analyze all the factors that contributed to ACORN's demise, but from spring 2008 to fall 2009 ACORN was rocked by three separate scandals or controversies that resulted in a public relations disaster for the organization. Most foundations decided to stop funding the organization, and dozens of government bodies (city, state, national) voted to stop funding any ACORN-affiliated organization. Although ACORN fired staff and made numerous internal reforms, it was unable to win the public relations battle in both the mainstream and right-wing media. Because two of these issues (an internal embezzlement of almost $1 million and controversies around voter registration drives) have already been analyzed (see Atlas, 2010), this commentary briefly describes and analyzes one aspect of the final controversy that ACORN encountered, the videotape smear campaign conducted by Hannah Giles and James O'Keefe. This analysis addresses this question: Did ACORN's organizing model of combining direct action organizing with service provision make it more vulnerable to smear campaigns? Because O'Keefe has recently institutionalized his model of citizen journalism, other progressive organizations should try to learn from ACORN's demise to avoid a similar fate. …

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.

'Temporary' Tax Provisions and Uncertainty: Evidence from a Survey of Professional Tax Preparers

We conduct a comprehensive survey that asks CPAs and other tax professionals to describe their opinions about the continuance of provisions in the tax code. Our objective is to see if the multiple extensions of many of these temporary provisions have led CPAs to conclude that these provisions are permanent, and if their opinion on these provisions affects advice they give their clients. We find that professionals on average believe that many provisions will be temporarily extended, but few made permanent. This finding is the same before and after the election date (November 6 2012).

The Coming Golden Age of Disruptive Innovation in Health Care

The Coming Golden Age of Disruptive Innovation in Health Care

Komu i do czego potrzebne były w XVI w. sumariusze podatkowe? O narodzinach planowania budżetowego we wczesnonowożytnym Królestwie Polskim

Who needed tax records in the 16th century and why? On budget planning at the start of the early modern period in Poland (Summary) The modern methods of calculating income and expenses using statistical data is sometimes attributed to the period of the Enlightenment. However, an analysis of the surviving sources (constitutions passed by the Sejm and registers of taxable income) suggests that the first attempts to create a balanced budget in the Kingdom of Poland can be dated between 1530–80. At that time action was taken to improve the functioning of the treasury, accompanied by the creation of new types of treasury documentation: tax returns and income tax registers. Both the form and content of the income tax registers indicate that they were used to calculate future years’ tax inflows and to seek the reasons for the periodical drops in revenue. Discontinuing the preparation of tax registers at the end of the 16th century was probably related to changes in the rules for preparing the state budget, which manifested itself in calculating lump-sum taxes or leasing out their collection. In place of planning the future budget, the treasury administration began to concentrate mainly on satisfying current state requirements and paying tax arrears.

Deskilling of Professional Services and Pseudo-Professional Identity in Tax Preparation Work (WITHDRAWN)

This paper argues that deskilling of professional services creates a paradoxical situation. While the replacement of skilled workers with a combination of unskilled laborers and expertise- encapsulating technology allows firms to reduce the cost of labor and, most importantly, to access the benefits of scale, the very absence of professionals makes it difficult for the firms to then sell the services as professional services. The paper suggests a mechanism by which this paradox, heretofore unaddressed in the discussion of standardization and deskilling of professional service work, is resolved in practice. Using a case of tax preparation work in the U.S., the paper demonstrates that professional identity can emerge in non-professional, low-status workers in the context of low-paying, standardized, deskilled professional work. Using in-depth interviews (N=50) and a field- based survey-experiment (N=437), the paper investigates the emergence of the pseudo-professional identity and finds that because professionalism is a strong cultural concept which does not require actual professionalization to be effective, playing a professional may be equivalent to being one. The paper further finds that poor work conditions that would seem inadequate for a claim of professional practice and that ostensibly contradict and inhibit professional identity, may promote and sustain it. The paper concludes with a discussion of pseudo-professional identity as a form of organizational control.

Integrating Tax Preparation with FAFSA Completion: Three Case Models

This research compares three different models implemented in four cities. The models integrated free tax-preparation services to assist low-income families with their completion of the Free Application for Federal Student Aid (FAFSA). There has been an increased focus on simplifying the FAFSA process. However, simplification is not the only barrier that students face while completing the FAFSA. Tax preparation is also an integral part to FAFSA completion. This paper illuminates how four cities aim to integrate tax preparation and FAFSA completion through local community partners. While all four cities faced a variety of challenges reaching their target populations at a scalable level, the Campaign for Working Families in Philadelphia demonstrated a more integrated, successful tax-preparation and FAFSA completion program due to its robust Volunteer Income Tax Assistance (VITA) organization.

In This Issue

In This Issue

E-Government Application: The Challanges in Malaysia

The changing trend to electronic device instead of manual filing system could enhance the collection of revenue and expedite the process. In fact it could help in reducing the burden and time of routine task i.e. checking and processing. However the acceptance level yet to be concern in certain area in government applications particularly in Malaysia. The idea of moving towards e-government in Malaysia as an alternative of the existing manual system started with the vision to be achieved in year 2020 in becoming a fully developed country. In rationalizing the vision, the Malaysian Government since then continuously spends a huge amount. Unfortunately, the huge amount of investment in upgrading the technology is seems to be wasted as there are certain operations not fully utilized the resources provided by the government. The evidence of low acceptance level in particular the e-filing system introduced by the Inland Revenue Board of Malaysia which is less than four per cent in year 2009 is one of the concern. Hence, the big question mark at this point is how could such situation turns out when the time for Malaysian government trying to achieve to the stage of developed nation is yet less than 10 years. The main objective of this study is to gain understanding on the gaps existed in the e-filing among the tax preparer. In seeking for the imperative answers, this research is design for the following objectives to determine the level of acceptance of tax e-filing; and to identify the determinants of tax e-filing acceptability.

Developments in tax e‐filing: practical views from the coalface

PurposeElectronic filing (e‐filing) of personal tax returns has become a global trend in developed countries. An increasing number of individual UK taxpayers are seeking help from tax advisers as ambitious e‐filing targets increase the interaction between taxpayers, tax agents and government departments. This article aims to review the attitudes to information and communications technology (ICT) adoption between these three groups.Design/methodology/approachThis article has partly built on the work of Walsh and White, who use Moore's “Technology Adoption Life Cycle” to examine e‐filing adoption by taxpayers and tax preparers in the USA. However, this article uses a mixed methodology that the authors argue is more suitable for the wider issues found in the UK.FindingsThe results confirm that small/medium sized tax agent firms are more likely to be technology enthusiasts/early adopters of e‐filing for their individual clients. As their business policies are more likely to be directly driven by technology enthusiasts, they have fewer issues with the incomplete e‐filing system available at the early stages of its roll out and were more motivated by the visible benefits available from adopting e‐filing. Larger firms have been slower and appeared more reluctant to embrace e‐filing of personal tax returns being concerned that engaging in HM Revenue and Customs controlled systems and targets would compromise their internal systems, ICT integrity and control of complex tax cases.Practical implicationsThis split in e‐filing attitudes by tax agents supports Moore's “chasm” argument for technology adoption processes, implying solutions for widening participation found appropriate for other domains could be equally applicable in this domain. The article reflects on these findings and proposes practical solutions that build on prior research to assist the government in achieving the future ambitious targets for e‐filing.Originality/valueThis paper reports the results of a national survey of tax advisers, supported by follow‐up interviews, addressing the development of e‐filing for personal taxation in the UK.

The Return on Investments in Tax Planning for Employees: Evidence from Germany

Tax preparation firms advertise their services as a way to save taxes. Along this line, we use a large cross-sectional sample of German income tax accounting data, consisting of employees and other taxpayers with non-business income, to explore the relationship between expenses for tax preparation and tax liabilities. We find a negative link with expenses exceeding estimated tax savings. Specifically, one additional Euro yields estimated tax savings of only 75 Cents which implies that individual tax planning is no profitable investment from a tax saving perspective. In consideration of time savings, tax planning is worthwhile only for high income groups. This result suggests for most taxpayers an overinvestment. Potential explanations include an overvaluation of time and tax savings or a benefit of tax planning beyond these savings.

The Role of Application Assistance and Information in College Decisions: Results from the H&R Block Fafsa Experiment*

Abstract Growing concerns about low awareness and take-up rates for government support programs like college financial aid have spurred calls to simplify the application process and enhance visibility. We present results from a randomized field experiment in which low-income individuals receiving tax preparation help were also offered immediate assistance and a streamlined process to complete the Free Application for Federal Student Aid (FAFSA) for themselves or their children. Treated participants were also provided with aid estimates that were compared against tuition cost amounts for nearby colleges. The combined assistance and information treatment substantially increased FAFSA submissions and ultimately the likelihood of college attendance, persistence, and aid receipt. In particular, high school seniors whose parents received the treatment were 8 percentage points more likely to have completed two years of college, going from 28% to 36%, during the first three years following the experiment. Families who received aid information but no assistance with the FAFSA did not experience improved outcomes. The findings suggest many other opportunities for using personal assistance to increase participation in programs that require filling out forms to become eligible.

Free Tax Assistance and the Earned Income Tax Credit: Vital Resources for Social Workers and Low-Income Families

As the United States' economy continues to experience challenges, more families at or near the poverty level fall prey to predatory financial practices. Their vulnerability to these operations is increased by a lack of knowledge of asset-building resources and alternative financial services. This article focuses on Volunteer Income Tax Assistance (VITA)--a free income tax preparation program, which is a vital resource available to low-income families. Unfortunately, VITA is largely underused and often unknown to economically strained families and to the social workers and other professionals to whom these families turn for assistance. This article concludes with policy and practice implications for social workers and other professionals engaged in providing services to financially vulnerable families.

Summaries of Papers in This Issue

Summaries of Papers in This Issue

Client Variables Associated with Four Key Determinants of Demand for Tax Preparer Services: An Exploratory Study

SYNOPSISThere is a rich literature associated with the dichotomous decision to hire/not-hire tax preparation services. There is also some research assigning motivation to the decision to hire tax preparation services. However, no research has examined the underlying demographics and key perceptions of clients that do hire tax preparation professionals to determine which are associated with specific motivations to hire. We focus on the four most common motivations to hire a preparer found in extant literature (i.e., saving money, saving time, legal compliance, and protection from the IRS). Using survey data, we perform exploratory analysis using MANCOVA to discover what client demographics and perceptions underlie each motivation.Our most noteworthy finding is that client perceptions of tax advocacy are positively associated with all four focal motivations to hire. Our results also suggest that female clients, more than male clients, choose tax preparers with a desire to save time and to be legally compliant. In addition, taxpayers with children tend to be more concerned with legal compliance. We also find that taxpayers with relatively complex returns are less likely to hire a preparer to provide a legally compliant return and to gain protection from the IRS.Data Availability: The data are available from the authors upon request.