Tax Preparation Research Articles

Regulation and Tax Preparer Qualifications

ABSTRACT Tax preparer regulation is a controversial topic among policymakers, the Internal Revenue Service, and certification providers. Proponents claim that regulation protects taxpayers from incompetent preparers, while opponents assert that regulation increases costs and discourages preparers from attaining higher qualifications. Following longstanding regulations in Oregon and California, the IRS implemented the Registered Tax Return Preparer program in 2012, which was unexpectedly invalidated in just its second year. Using this quasi-experimental setting and a unique dataset of all U.S. tax preparers obtained from the IRS, we test the effect of regulation on tax preparer qualifications. We find that tax preparer regulation is positively associated with the proportion of highly qualified tax preparers. We also find that regulation increases (decreases) the likelihood that a market entrant (exiter) is highly qualified. In additional analysis, we find some evidence that tax preparer regulations are associated with increased fees and better tax return quality. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: H29; J44; M40.

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.

Heard it through the grapevine: The direct and network effects of a tax enforcement field experiment on firms

Tax enforcement may have deterrent effects that extend beyond directly treated taxpayers, but evidence of such deterrent effects for major sources of revenue is limited. This paper studies the effects of a large-scale field experiment on employer deposits that make up most U.S. tax collections. In-person visits by Revenue Officers have a large direct effect on visited firms' tax deposits. The other clients of visited firms' tax preparers also deposit more tax, a network effect that suggests preparers disseminate information. Aggregating over all links, this network effect accounts for 1.2 times as much revenue as the direct effect. Letters conveying the same message are found to have much smaller direct effects and no measurable network effects.

The effect of tax preparers on corporate tax aggressiveness: Evidence form the UK context

AbstractThis paper studies the role of tax preparers in tax aggressiveness. Based on a sample of 342 UK companies indexed on the Financial Times Stock Exchange (FTSE) 350 from 2006 to 2016, it finds that external tax preparers are more tax aggressive than internal ones. The result is explained by the capability of external preparers to take more aggressive tax positions than internal preparers because of their knowledge in different changes to tax law, and their higher expertise in this field. The findings has implications for managers, policymakers and researchers.

Auditing in the Era of Big Data

Firms routinely manage their financial reporting systems on external cloud platforms that are susceptible to cyberattacks and data integrity issues. Therefore, the American Institute of Certified Public Accountants developed a special type of voluntary audit called a Service Organization Control audit (SOC audit) that evaluates this risk. This study conducts one of the first systematic analyses of the benefits and costs of these voluntary audits. Using hand-collected data from public firms, I find that (1) 29 percent of firms in the SP (2) business-model exposure to technology predicts a firm's decision to receive these audits; (3) the scope of these audits includes internal controls over data integrity; and (4) these audits are one of the largest predictors of the variation in audit-related fees, amounting to a $900,000 average annual increase in these fees at the firm level (by comparison, tax preparation fees average about $1.3 million). SOC audits are thus an important and concrete example of the broader social and governance mandates of new reporting frameworks, such as the ISSB's Value Reporting Framework and FASB's ESG framework.

Pengaruh Partisipasi Penyusunan Pajak Penghasilan Badan Yang Terutang Terhadap Kinerja Bagian PPh Badan Dengan Koreksi Fiskal Sebagai Penentu Kebijakan

According to Hidayat (2013) in terms of financial statements, there are many contradictions within the company and the many interests that exist within the company in preparing financial statements to prepare their taxes to be compiled as Corporate Tax Income Tax reports (Article 25 Income Tax) many conflicts in preparing corporate tax reports, starting from income tax article 21 to income tax article 25 of the profit / loss statement, so that the tax return can be reported as a corporate taxpayer, then in this case before reporting and avoiding tax errors, a fiscal correction is needed to carry out tax preparation. According to Agustina (2007) states that in the preparation of taxes it is necessary to have coordination from various parties who use interests in the use of company finances due to future policy determinants.From this research it is found that in the process of preparing corporate tax many companies do not correct fiscal financial reports, many accounts are not included in the tax calculation, so that if used can reduce the tax burden.In addition, companies can be used to gain investor trust and fairness entities.From expenditures and reports can show the fiscal can show the performance of Corporate Income Tax goes well.The second proof that in the tax preparation process using fiscal correction shows the fairness of a tax obligation.In this case the fiscal financial statements and if corrected fiscal will cause good corporate income tax performance.This shows that there are no tax arrears in a corporate entity because the company complies with company regulations.

Tax Preparers and Tax Evasion: Punishing Tax Payers or Tax Preparers?

We focus on amoral taxpayers who are aware of having a biased perception of the audit probability but are unable to correct such bias without the help of a tax preparer. The tax preparation market is characterized by imperfect competition. Profit maximization implies that the suggested correction of the evasion amount is partial and the report is not aligned with the one authored by an unbiased amoral taxpayer. Assisted returns are still more compliant than the self-made unbiased ones when the detection probability is overestimated, while the opposite occurs in the case of underestimation. Tax preparers thus appear to exert an ambiguous role on compliance, fostering a median stance. This provides an explanation for the ambivalent attitudes of tax authorities towards tax preparers. Sanctions on taxpayers are more effective than sanctions on tax assistants in deterring tax evasion.

Recovering co-created service failures: the missing link of perceived justice and ethicalness

PurposeDrawing on the fairness theory, this paper aims to propose a conceptual framework that investigates how co-creation in the failed service delivery (coproduction intensity) and co-creation in the service recovery affect customers’ evaluation of the firm’s competence, justice and ethicalness, and ultimately their willingness to co-create in the future.Design/methodology/approachTax services were chosen as the research context. A consumer panel consisting of individuals who live in the USA and have used tax preparation services within the past year was recruited. The first study explores what happens to customers’ ethical perceptions during a failed co-created service encounter. A secondary study investigates what happens to customers’ ethical perceptions in the event that the failed co-created service is recovered.FindingsThe findings show that customers’ perceptions of the firm’s abilities and ethics are impeded by coproduction intensity but favorably influenced by co-creation of recovery.Practical implicationsA sense of ethicalness and fairness is violated when co-created service failure occurs, but fortunately, practitioners can count on engaging customers in the service recovery process as co-creators of the solution to positively alter perceived ethicalness and fairness.Originality/valueFailed co-created services represent an under-researched area in the marketing literature. Current investigations of co-created service failures have largely approached the notion of fairness from a perceived justice perspective without referencing ethical judgments. However, fairness is grounded in basic ethical assumptions of normative treatment. This research is among the first to highlight the importance of perceived ethicalness in the context of co-created service failure and recovery.

The Earned Income Tax Credit

In this article, I review the most prominent provision of the federal income tax code that targets low-income tax filers, the Earned Income Tax Credit (EITC), as well as the structurally similar Child Tax Credit and Additional Child Tax Credit. I discuss the programs’ goals: distributional, promoting work, and limiting administrative and compliance costs. The article reviews the history of the programs, the predicted economic effects, and what is known about program impacts and distributional consequences. I conclude that the EITC effectively targets low-income households and is efficient in reducing poverty while encouraging work and that increases in after-tax household incomes lead to improved outcomes over the life course for children of those households. I propose reforms to the program, including policies that expand the generosity of the credit and increase take-up, as well as structural reforms that include spreading benefits throughout the year and reducing reliance on paid tax preparers.

Tax Preparation Pilot

Tax Preparation Pilot

Medical-Financial Partnerships: Cross-Sector Collaborations Between Medical and Financial Services to Improve Health.

Financial stress is the root cause of many adverse health outcomes among poor and low-income children and their families, yet few clinical interventions have been developed to improve health by directly addressing patient and family finances. Medical-Financial Partnerships (MFPs) are novel cross-sector collaborations in which health care systems and financial service organizations work collaboratively to improve health by reducing patient financial stress, primarily in low-income communities. Financial services provided by MFPs include individually tailored financial coaching, free tax preparation, budgeting, debt reduction, savings support, and job assistance, among others. MFPs have been shown to improve finances and, in the few existing studies available, health outcomes. We describe the rationale for MFPs and examine 8 established MFPs providing financial services under 1 of 3 models: full-scope on-site service partnerships; targeted on-site service partnerships; and partnerships facilitating referral to off-site financial services. The services MFPs provide complement clinical social risk screening and navigation programs by preventing or repairing common financial problems that would otherwise lead to poverty-related social needs, such as food and housing insecurity. We identify common themes, as well as unique strengths and solutions to a variety of implementation challenges MFPs commonly encounter. Given that the financial circumstances and health outcomes of socially marginalized patients and families are closely linked, MFPs represent a promising and feasible cross-sector service delivery approach and a new model for upstream health care to promote synergistic financial well-being and health improvement.

Factors driving tax compliance costs of small businesses in the South African construction industry

Orientation: Tax compliance costs are regressive in nature and impose a heavy burden on performance and sustainability of small businesses. Research purpose: The aim of this article was to identify endogenous factors that drive tax compliance costs of small businesses in the construction industry of South Africa. Motivation for the study: Small businesses in the construction industry face many challenges that result in low-profit margins, poor performance and eventually failure. Tax compliance costs are one of the factors behind poor performance and failure, as often cited by small businesses, and as such warranted an investigation into the factors that drive the costs. Research design, approach and method: Data were collected using self-administered questionnaires that were emailed to contractors in classes 3 and 4 of the Construction Industry Development Board’s register. A total of 83 usable questionnaires were returned and analysed using the structural equation modelling function of STATA data analysis and statistical software. Main findings: Statistical tests performed revealed that business size, age, method of settling tax obligations and qualifications of the tax preparer drive tax compliance costs of small businesses in the construction industry. Practical/managerial implications: Empowerment of employees and owners engaged in tax tasks, through formal education and tailor-made training, reduces the tax compliance burden and improves the performance of small construction businesses. Contribution/value-add: The results of the study could assist business owners and managers in the construction industry in identifying efficient tax approaches that could minimise the tax compliance costs burden. They also assist with better planning by government departments in terms of the kind of tax support required by small businesses in the construction industry.

Fostering farm transfers from farm owners to unrelated, new farmers: A qualitative assessment of farm link services

The transition of farms and ranches to the next generation has generated considerable attention and concern. Over the past 30 years, public and private institutions across the U.S. have introduced policies and programs to help farms without identified family successors achieve successful transfers by connecting them with new farmers through “farm link” services. However, the effectiveness of these services is unclear and assessment is needed. This primarily qualitative study used interviews with program leaders and their responses to a questionnaire to assess the 30 active and closed farm link programs of the 12 states of the U.S. Midwest and Central Plains, resulting in a collection of best practice recommendations. Broadly, these programs target differing audiences and offer various services not limited to the function of linking farm/ranch owners with potential non-family successors. Most programs are located in NGO’s (63%), with the others hosted by state departments of agriculture and land grant university extension systems. Program leaders agree that linking is needed to augment seekers’ and owners’ personal networks. They recommend that farm link services focus on medium-term outcomes, and provide a list of metrics. Program leaders also recommend other, complementary services to support and advance non-family transitions to new farmers, primarily: (1) state-level beginning farmer tax credits; (2) educating farm owners’ advisors, such as lenders and tax preparers, about their clients’ opportunities to transfer to an incoming farmer; (3) case management to facilitate transfers between unrelated parties; and (4) providing discussion spaces online and on social media to build farmer/rancher networks and relations between farm seekers and farm owners.

Occupational Licensure and Entrepreneurs: The Case of Tax Preparers in the United States

The authors examine the relationship between entrepreneurship and occupational licensure using data on the universe of more than 700,000 tax preparers in the United States. Prior research suggests that occupational licensure has negative effects on entrepreneurship because it increases the costs of operating a business. By contrast, the authors argue that licensure may allow entrepreneurs to signal quality and enhance their legitimacy. States that require tax preparers to be licensed have higher average rates of entrepreneurship—approximated by tax practice ownership—and, in high-income ZIP codes, more demand for paid preparer services. In the analysis of the introduction of a federal license requirement in tax preparation in 2013, voluntary early adoption of the license by preparers predicts higher chances of survival in the industry. Entrepreneurs are less likely to adopt the license early than are non-entrepreneurs, unless they lack other state-level credentials. Results thus suggest that licensure represents a trade-off for entrepreneurs between the costs of obtaining a license and the benefits of signaling quality and legitimacy.

The Role of Information Aggregators in TaxCompliance

Fifty-six percent of the U.S. taxpaying population uses a paid tax preparer, but the effect of these tax preparation services on tax compliance is not well-understood. Although governments conceal the algorithms they use to determine which taxpayers to audit, tax preparation firms with large client bases may be able to infer these algorithms and therefore offer strategic advice to taxpayers. This paper formalizes this role, using a simple asymmetric information model where agents can purchase full information about the government's enforcement rules. In a competitive market for tax preparation services, demand for tax preparers is selective and increases in taxpayer income. Moreover, the presence of tax preparers always reduces compliance. Perhaps surprisingly, if the demand for strategic advice is high enough, the government can mitigate evasion by revealing full information about its audit rule.

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.

Assessing Job Performance of Tax Agents via E-Filing System

Tax agent plays a vital role in ensuring tax compliance of the taxpayers. The consideration on their job performance is crucial to enhance their clients’ tax compliance. Tax agents are highly dependent on the e-filing system in performing their job since they are the frequent system users. Despite of its benefits, there are also setbacks in the e-filing system that impeding and hampering the tax agents’ job performance which include functionality, information quality and infrastructure issues. The knowledge of the tax agents is also one of the issues on their job performance via e-filing system. Therefore, this conceptual paper aims to identify factors influencing job performance of tax agents in the tax preparation process via e-filing system. This paper proposes a framework which applied the combination of Information System Success (ISS) Theory and Theory of Planned Behaviour (TPB. The framework is useful to identify the area of improvement for e-filing system which lead to the improvement of tax agents’ job performance.

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.

Tax Preparer Certification and Organization Form among Uncertified Preparers Influence Client Satisfaction and Experience

ABSTRACTHow does state certification (e.g., CPA, enrolled agent [EA], or attorney) and organizational form among uncertified preparers (big box “franchise” firms versus not) influence client satisfaction and interactions? Results from a sample (n = 3,984) of Yelp ratings of U.S. tax preparers indicates that certified preparers receive higher ratings than do uncertified small-firm preparers, who earn higher ratings than do franchise preparers. Linguistic analysis suggests that clients of certified preparers experience tax preparation service as a “relational” interaction, with reviews evidencing more positive affect and inclusive pronouns (e.g., we). In contrast, the clients of franchise firms experience tax preparation as “transactional,” with reviews evidencing more swear words and impersonal pronouns. Linguistic results for uncertified small preparers fall between those of certified and franchise preparers. The paper is among the first to adapt emerging corpus linguistic methods to examine client perceptions of professional accounting services.

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.