Tax practitioners and tax compliance: A microeconometric analysis of the decision to engage a tax preparer and its consequences.

The Internal Revenue Service estimates that $56.3 billion was owed by filers of 1987 individual income tax returns but not voluntarily paid. This ``filer tax gap'' received a great deal of press during the recent presidential campaign, and much attention has been directed towards finding ways to close the gap. Due to their pervasive use and specialized knowledge of tax rules and enforcement, tax practitioners may have a significant influence on the compliance process. This dissertation is comprised of three chapters. The fist chapter reviews the existing body of theoretical, survey, and econometric research concerning tax practitioners. This literature has focused on two related themes: (i) the decision to hire a tax preparer; and (ii) the differences in compliance characteristics among self-prepared and paid-prepared returns. Previous researchers have examined the issues of tax preparation and tax compliance independently. In contrast, Chapter II presents several models that link together the preparation mode and compliance choices. In addition, this chapter addresses previously unexplored issues, including the influence of tax practitioners on overreporting errors and problems in the detection of noncompliance. The models of the second chapter are estimated using a subsample of the 1982 Internal Revenue Service Taxpayer Compliance Measurement Program (TCMP) data base, which contains the results of intensive audits of a random sample of federal individual income tax returns. A consistent finding across all of the models is that, after controlling for observable differences in taxpayer characteristics, the average level of noncompliance (but not its frequency) is substantially larger on paid-prepared returns. A second finding is that paid-preparers reduce the frequency of unintentional misreporting but that their errors tend to be larger in magnitude when they do occur. The framework of the second chapter is generalized in Chapter III to distinguish between returns prepared by Certified Public Accountants (CPA's) and lawyers and returns prepared with other forms of assistance. Employing data from the 1979 TCMP data base, which distinguishes among preparer types, this chapter provides evidence that CPA's and attorneys appeal to a different client base and exhibit more aggressive characteristics than do other providers of tax assistance.Ph.D.EconomicsSocial SciencesUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/128514/2/9023544.pd