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Tax practitioners are accountable to multiple parties with divergent objectives when carrying out their function as both client advocates and Internal Revenue Service (IRS) agents. In addition, tax practitioners are employed by firms that simultaneously demand client satisfaction and tax law compliance. Thus, firm pressure may serve to magnify the level of goal incongruence faced by tax practitioners. This study measures the sources and levels of accountability pressure felt by practitioners. In addition, the study investigates how tax return behavior is affected by multiple sources of accountability pressure. A survey of 227 tax professionals is used to measure accountability pressure and responses to various tax scenarios. Results indicate that significant accountability pressure exists from respondents' firms to comply with the tax law and to please tax clients. Additionally, tax practitioners from larger CPA firms report feeling more accountability pressure from their employers. Finally, while the amount of reported accountability pressure differs across several demographic variables, actual tax return behavior seems to be affected only by the accountability pressure felt from respondents' firms to comply with the IRS.

This paper examines the accuracy of the reporting recommendations of professional tax preparers, the extent of agreement among those recommendations, and the degree of aggressiveness of preparers' recommendations. In contrast to prior laboratory studies, however, archival data from six tax-return preparation contests reported in Money magazine from 1988 to 1993 are examined. These contests have professional tax preparers evaluate the tax obligation of a hypothetical family. While the contests resemble in some ways conventional experiments in taxation and other fields, they overcome some of the typical criticisms of laboratory experiments—including the lack of access to peer consultation and decision-aiding tools and the absence of strong financial or reputational incentives to perform well. The data reported in Money shed light on some possible determinants of tax preparers' accuracy, agreement, and aggressiveness that have been identified in the laboratory. When statistically significant results are found, however, they often conflict with those from laboratory experiments.

The evaluation of evidence is a key component of the tax research task. This study adds to the current literature regarding evidence evaluation and confirmation bias in the accounting profession. Previous studies have suggested that tax professionals prefer evidence that confirms their initial opinion, which is consistent with the findings in the psychology literature. This study considers the effects of the tax professional's environment in which these decisions are made. First, staff accountants responsible for finding and evaluating evidence are directly accountable to a supervising accountant. Second, client advocacy is prevalent in all decisions in public accounting. Client advocacy results in a preference for the client-favorable position. Staff accountant subjects in this study were found to be affected by the opinions of their supervisors. However, this effect was moderated by the preference for the client-favorable position. Subjects in an evidence evaluation task confirmed their supervisor's opinions (going against their own initial opinions) only when the opinion was the client-favorable position. When the supervisor's opinion was not client-favorable, accountants confirmed their own initial opinions (going against their supervisors' opinions). These findings supplement the findings of previous studies by determining how contextual factors such as accountability and client advocacy affect the influence of confirmation bias in an evidence evaluation task.

This study examines the market reaction to the adoption of an allowance for tax amortization of purchased goodwill. Specifically, this study compares the market reaction between asset-acquiring firms with substantial purchased goodwill, which could most utilize this provision, and stock-acquiring firms, which could not benefit from this allowance, as well as firms with insubstantial purchased goodwill. The results of this study indicate that the market did react to the goodwill amortization provision. The market reaction for asset-acquiring firms with high goodwill, relative to total assets, experienced positive abnormal returns. A positive reaction also was observed for the Supreme Court's decision in Newark Morning Ledger and the vote in the House of Representatives on an earlier version of the legislation. The study provides evidence that there is a relationship between the type of acquisition and level of abnormal returns, but not between the magnitude of goodwill acquired and the level of abnormal returns.

This study investigates taxpayers' assessments of what they believe to be fair amounts of federal income taxes for families that differ with regard to the number of dependent children, the number of spouses employed, and marital status. Three-hundred-and-sixty-six prospective jurors from Alabama and Colorado participated in the experiment. In a between-subjects design, tax liabilities were: (1) lower when households included dependent children, (2) the same regardless of whether one or both spouses generated the income, and (3) the same for married couples and singles with the same total incomes. Participants did not assess taxes so as to avoid a marriage penalty; instead, they assessed taxes in a manner that avoided a single's penalty, even though approximately three-fourths of the participants were married. Further, contrary to current tax policy, within-subject results suggest that participants consider it fair for a single parent to pay significantly less tax than a married couple with a child.

Using attribution theory as a basis, this study increases the understanding of the tax preparer/client relationship by examining how tax return outcomes affect the level of responsibility that clients and nonclients place on tax preparers. This study also examines the impact of tax return outcomes on the continued use of the preparer. Attribution theory maintains that whether an event has a positive or negative outcome and whether an individual is directly involved in the event (i.e., an actor) or is an impartial third party (i.e., an observer) will affect where the individual places the responsibility (or cause) for the event. This study examines actors/clients' and observers/nonclients' responsibility assessments related to a tax deduction taken for positive (no IRS audit), negative (IRS audit with penalty and interest assessments), and mixed (IRS audit but the client's tax position is upheld) tax return outcomes. These responsibility assessments are examined across the taxpayers' initial beliefs concerning the tax deduction. The results are consistent with attribution theory. Actors/clients assigned more responsibility for the IRS audit to the tax preparer than did the observers/nonclients. For the no IRS audit situations, the actors/clients felt that they were more responsible for the positive outcome while the observers/nonclients gave the credit to an external factor, the tax preparer. In the mixed outcome situations, both the actors/clients and the observers/nonclients placed responsibility on the tax preparer. Overall, these results indicate that clients blame tax preparers for any tax return that is audited. This conclusion is further strengthened by the finding that in any situation where the client's return was audited, even with a positive audit outcome, both the actors and the observers were significantly less likely to retain the preparer in the future. The study also found that subjects' initial beliefs concerning whether to take an ambiguous tax deduction were not significant in the subjects' assignment of responsibility for the tax return outcomes in situations where an IRS audit occurred.

Both federal and state governments have used the investment tax credit (ITC) as an investment incentive, but prior research provides conflicting results on the credit's success in encouraging capital investment. The inconsistent evidence may be attributable to the primary use of macroeconomic investment models and their inherent limitations. This study uses financial analysts' firm-specific forecasts of short-term and long-term capital expenditures as measures (or proxies) of firms' planned investment behavior. The ITC's incentive effects are estimated using revisions in forecasted capital expenditure amounts published before and after relevant tax legislation dates. In general, results suggest that ITC-related provisions have affected firms' short-term and long-term capital expenditure plans but that any incentive effects are concentrated primarily among low-debt firms and firms with positive taxable income. This study's results suggest that policymakers must consider the tax and nontax characteristics of the individual firms that comprise the population of firms targeted by tax policy changes. The effectiveness of tax incentives relies on these firm-specific characteristics, and failure to consider these firm-specific attributes will likely lead to errors in the estimated impact of tax policy changes. Overall, this study demonstrates the importance of examining tax policy in a microeconomic framework.