Advances in Taxation: Volume 19

This study examines contextual influences on taxpayers’ perceptions of a vague “low” probability of detection and the relationship between taxpayers’ perceptions and their likelihood to take questionable tax deductions. As such, we tie psychological theories that explain differential interpretations of qualitative probability phrases (base rate and support theories) to the taxpayer perception literature. Consistent with our hypotheses, taxpayers’ interpretations of “low” differ both between and within subjects, depending on the context in which deductions are presented. On average, our taxpayer subjects are less likely to take questionable deductions perceived to have a higher probability of detection than those perceived to have a lower detection probability. Our results contribute to existing literature by demonstrating that knowledge of subjects’ assessments of an event's probability is integral to designing experiments and drawing conclusions regarding observed behavior. This appears necessary even when researchers provide assessments of detection probabilities and/or employ scenarios for which systematic differences in probability perceptions are not inherently obvious.

I examined the association between economic, savings, and psychological factors on participation in traditional Individual Retirement Accounts (IRAs) (1983–1985). The data were panels of tax returns representing households qualifying for the maximum IRA contribution and whose only sources of income were employment and investments. Along with traditional economic variables, my regressions included psychological factors such as framing effects based on adaptive expectations. Although both economic and psychological constructs were important in explaining savings behavior, the latter were shown as more salient. Households having less favorable than expected withholding positions increased IRA participation, a finding corroborating prior research. Savings propensity (SAVE) and past participation were the most important factors linked to IRAs. Unexpected investment income was significantly related to IRA participation, providing evidence that deductible IRA contributions represent new savings rather than reshuffled old savings. The policy implications of this study suggest that savings plans redesigned to encourage greater retirement savings should include tax benefits that are in temporal proximity to the desired savings behavior.

This study examines the influence of peers in the tax compliance setting using a social learning theory approach to investigate the effect of observing a peer's likelihood of reporting income. We also examine the role that gender plays in these decisions. We ask participants to estimate the likelihood of reporting income and to make a binary compliance decision in a setting where they are able to observe what they believe is another's response to a hypothetical tax reporting scenario. Participants who viewed the decision of a noncompliant peer were less likely to report honestly than those who viewed the decision of a compliant peer. This finding provides further evidence of a potential effect for peer influence. Consistent with prior literature, we find that women are more likely to comply than men, but do not find an interactive effect with peer observation. A supplemental experiment indicated that participants who believed their responses would be seen by a peer were less likely to report honestly than participants who believed their responses would remain private. This result, although counter-intuitive, is consistent with Wenzel's (2005a) description of a self–other discrepancy and conformance to a misperceived social norm.

This research develops a scale to measure taxpayers’ motivation to hire tax preparers. Prior research has examined this topic with simple checklists or open-ended questions. The importance of the taxpayer–preparer relationship suggests more research is needed, and a valid scale would increase the generalizability of findings. Initially 76 items were analyzed using exploratory factor analysis. The data indicate four separate constructs: legal compliance, time savings, money savings, protection from/avoidance of the IRS. After the initial analysis, 27 items remained, a second round of data was collected, and confirmatory factor analysis and coefficient alpha allowed further reduction to 14 items. The final constructs remain the same. This scale is a methodological contribution for use by tax researchers that will assist in increasing the generalizability of findings regarding taxpayers’ motivations to hire tax preparers.

A substantial portion of criminology research has centered on financially motivated crimes, including those characterized as white-collar. This chapter argues that understanding and preventing accounting and tax fraud can be furthered by placing the phenomenon within the context of criminology research, an area that has been explored but not embraced by accounting researchers. This chapter describes and applies one such criminological theory, microanomie (Konty, 2005), which uses cognitive measures of social values to explain criminal behavior. We report the results from a survey that identified subjects’ commitment to self-enhancing values, such as achievement and power, and to self-transcending values, such as benevolence and universalism. We found that those with an excess of self-enhancing over self-transcending values were most likely to commit tax fraud by receiving off-the-books income. Our analysis, although exploratory in nature, suggests that microanomie may be useful in explaining other types of accounting-related crimes.

Despite its popularity as a research topic in the United States, property taxation in other countries has not received as much attention. International comparisons of property tax systems are particularly rare in the academic literature. The purpose of this study is twofold. First, the chapter summarizes the main differences and similarities of the property tax systems in 24 Organisation for Economic Co-operation and Development (OECD) countries between 1970 and 2005. We show that these countries’ property tax systems vary with regard to three different property tax characteristics: reliance, mix, and decentralization. Second, we show that a significant amount of the cross-country variations of property tax and real estate tax reliance can be explained by institutional culture, specifically the difference between Anglo and non-Anglo countries, as well as demographic and economic environmental factors such as the elderly population, income, and unemployment.

For several decades, a prominent movement within government and the legal profession has emphasized the use of “plain language” to improve readability in legal writing. Plain language legal writing in U.S. Tax Court opinions is important for tax advisors and their clients for two primary reasons. First, clients value efficiency in the work of the tax advisor. A tax advisor can research a thorny legal issue more efficiently and cost-effectively if the related Tax Court opinions are written in a clear, logical, and easy-to-read manner. Second, if opinions are difficult to understand, they provide less certain authority. A degree of certainty in the tax law is important for taxpayers to plan and conduct their economic activities, whereas a lack of certainty creates confusion and an inefficient tax compliance and planning environment.

We examined the readability of the Tax Court opinions using the Flesch Reading Ease formula. Since we selected the opinions used in this study based on the same database search term, they contain similar technical content, improving comparability of readability scores. The analysis shows that as the plain language movement progressed over the years, the readability of these opinions has actually decreased.