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This chapter presents a seven-part case developed for use in a graduate-level tax planning class. The case is organized in a taxpayer/business “life-cycle” approach. Over…
This chapter presents a seven-part case developed for use in a graduate-level tax planning class. The case is organized in a taxpayer/business “life-cycle” approach. Over the semester the case follows a married couple as they consider a number of investments, start a business, and expand the business. As the case progresses, the couple faces increasingly complex tax and business issues. The couple eventually winds down their involvement in the business and begins to plan for their retirement years. This chapter also provides a review of behavioral tax research published in the top accounting journals over the period 2004–2013. The chapter concludes with a discussion of how the case could be adapted by behavioral tax researchers in their research programs and perhaps by accounting firms in their training programs.
Prior tax compliance research has largely ignored low-income individual taxpayers, as they have historically been viewed as having an immaterial impact on Federal tax…
Prior tax compliance research has largely ignored low-income individual taxpayers, as they have historically been viewed as having an immaterial impact on Federal tax revenues. However, the earned income tax credit (EITC) program has altered the Federal tax revenue landscape in this regard. The Internal Revenue Service (IRS) investigated the magnitude of EITC tax overpayments for tax year 1999 and concluded that between 27 and 31% of EITC filings were overstated, resulting in over-payments of between $8.5 and $9.9 billion (IRS, 2002). These excessive payments represented about 0.5% of total Federal revenues and 2.8% of the total tax gap. Thus, to the extent that low-income individual taxpayers intentionally under-report their incomes in order to receive higher EITC’s, the Federal budget is noticeably affected.
This study extends and complements extant tax research by examining the compliance intentions of low-income individual taxpayers. Relying on the theory of planned behavior, we examine the extent to which perceived tax equity (vertical, horizontal and exchange), normative expectations, and legal sanctions affect tax compliance intentions. Consistent with the hypotheses, the results indicate a significant positive relationship between compliance intentions and: (1) equity perceptions of the tax system; (2) normative expectations of compliance; and (3) penalty magnitude. Additionally, the findings suggest two-way interactions between penalty magnitude and exchange equity, and penalty magnitude and normative expectations. Research results reported herein hold important policy implications related to the Federal government’s efforts to reduce tax cheating and increase compliance among low-income individual taxpayers.
This study aims to investigate the extent to which the theory of reasoned action (TRA) can be used to explain tax compliance among small business enterprises (SBEs) in…
This study aims to investigate the extent to which the theory of reasoned action (TRA) can be used to explain tax compliance among small business enterprises (SBEs) in Uganda and extends the application and relevance of the theory to a new area of tax compliance. It contributes the TRA, as a predictor of tax compliance in a developing country context.
A cross-sectional survey targeting different categories of SBEs was carried out using interviewer-administered questionnaires. A sample of 384 SBEs was used in the study.
The TRA contributes critical insights on the tax compliance behaviour of small businesses in developing economies. It influences tax compliance behaviour. The study illustrates evidence about the negative attitudes SBEs have on intentions to comply with tax regulations and the extent to which these attitudes influence their compliance behaviour. Subjective norms positively influence tax compliance intentions in a positive manner. Overall, the appearance of these intentions shows a negative effect on tax compliance behaviour. These findings also imply that Uganda Revenue Authority needs to understand the social psychology of taxpayers and tailor these in their policies and efforts to increase compliance.
The TRA has been used to explain behaviour in numerous situations in psychology. The study used this theory in a new geographical, economic and administrative environment; Uganda. This theory has proved relevant in explaining psychological, sociological and economic behaviour; specifically tax compliance. The TRA was revised to include a new construct of perceived behavioural control, which turned into the theory of planned behaviour. This could not be studied due to time and logistic constraints. Therefore, there is a need to investigate if this revised theory can explain tax compliance behaviour better.
The paper suggests that tax administration efforts and policies should consider the social-psychology aspects of the taxpayers to improve tax compliance.
This study adds a new arena of explaining tax compliance from a theory commonly used in psychology to a new setting in finance.
Behavioral accounting research has flourished over the past 40 years and vastly improved our understanding of accounting judgment and decision-making, human behavior as it…
Behavioral accounting research has flourished over the past 40 years and vastly improved our understanding of accounting judgment and decision-making, human behavior as it is affected by accounting information and processes, and influences on organizational and social structures. However, to increase the validity and reliability of the work, researchers have generally narrowed the area of study to exclude many of the environmental factors that can influence the resulting behaviors that are observed. One environmental factor that has largely been ignored by the broader accounting research community is the rapidly increasing impact of information technology (IT) on all aspects of accounting. The purpose of this chapter is to elaborate on the predominance of IT in all areas of accounting and to urge behavioral accounting researchers to integrate IT aspects into their research to enhance the value and relevance of our research. Each of the major areas of accounting disciplinary research is considered (i.e., financial accounting, managerial accounting, auditing, and tax). This disciplinary focus is not intended to exclude the area of accounting information systems as is often the case in commentaries on behavioral accounting research but rather to focus on how accounting information systems are fundamentally integrated across the decision environments of every aspect of the accounting discipline.
The purpose of this paper is to document relationships between accountants’ socioeconomic beliefs and attitudes and their professional commitment and ethical decisions in…
The purpose of this paper is to document relationships between accountants’ socioeconomic beliefs and attitudes and their professional commitment and ethical decisions in a domain-specific context. Specifically, it investigates the relationships among Chinese tax accountants’ level of belief in the importance of corporate ethics and social responsibility, affective/normative professional commitment and ethical judgements/intentions in a case involving client pressure to commit tax fraud.
The study employs a survey of tax practitioners employed by public accounting firms in China. The data are analyzed using linear regression and structural equation modelling.
The stakeholder view, representing both normative and practical support for the importance of corporate ethics and social responsibility, was strongly and positively associated with professional commitment among tax practitioners. The stakeholder view also exhibited a strong negative association with intentions to engage in tax fraud. Tax accountants who possessed higher levels of professional commitment judged tax fraud as more unethical, and such ethical judgements were associated with a lower likelihood of intending to engage in fraud.
The associations between: first, professional accountants’ beliefs in the importance of corporate ethics and social responsibility and their level of professional commitment; and second, professional commitment and tax professionals’ ethical judgements have received little attention in the prior literature. The findings of this study suggest that the integrity of public accounting services may be influenced by relatively broad socioeconomic attitudes, and that this effect may operate partially through commitment to professional values.
In this study, we examine the role of temporal framing in the context of tax audit risk. Using construal-level theory, we propose that compared with an every-year frame…
In this study, we examine the role of temporal framing in the context of tax audit risk. Using construal-level theory, we propose that compared with an every-year frame (e.g., 1.5 million returns are audited every year), framing audit risk in an everyday frame (e.g., 4,000 returns are audited every day) will make audit risk seem more likely and thus increase taxpayer compliance. We test whether perceived fairness of the tax system, an individual difference variable related to tax compliance, moderates the effect of temporal framing on behavioral intentions. The results show that communicating risk in a day frame rather than a year frame increases compliance for taxpayers who perceive the tax system as unfair but not for taxpayers who perceive the tax system as fair. Increasing compliance among taxpayers who perceive the tax system as unfair is crucial, as they are less likely to be compliant. Thus, framing audit risk can assist in increasing taxpayer compliance.
This brief paper discusses the relevance of conducting surveys that measure individuals’ attitudes for understanding fiscal behaviour. While many surveys assess…
This brief paper discusses the relevance of conducting surveys that measure individuals’ attitudes for understanding fiscal behaviour. While many surveys assess individuals’ attitudes towards paying taxes (e.g. by asking them to what extent they believe tax evasion is ever justified), it is less clear whether individuals’ responses to such survey questions are indicative of the way they would behave in reality. The paper presents a discussion of the way attitudes have been assessed in tax surveys and assesses existing evidence to support a link between these attitude measures and actual compliance behaviour. The paper suggests several avenues to improve the predictive value of attitude measures, such as increasing the specificity of measures, using evaluation scales or mitigating social desirability biases. A series of recommendations are made for measuring attitudes and interpreting attitude surveys for the use of researchers planning to conduct survey work, as well as for the use of findings from taxpayer surveys in the design of tax policy and administration.
Behavioral tax research investigates the behavior of tax practitioners and taxpayers, mostly in a judgment/decision-making (JDM) context. We review and evaluate behavioral…
Behavioral tax research investigates the behavior of tax practitioners and taxpayers, mostly in a judgment/decision-making (JDM) context. We review and evaluate behavioral tax research since 1993, and provide suggestions for the direction of future research.
Tax practitioner JDM research has had two main foci: reporting positions, and information search and knowledge. Both have been fruitful, and should continue to be so. We place particular emphasis on improving studies of reporting position, especially in the areas of measurement, and internal and external validity.
Research on taxpayer behavior has been more diffuse, perhaps overly so. The JDM research may be dichotomized between that using compensated subjects (economics-based) and that using uncompensated subjects (chiefly psychology-based). These form distinct bodies of research that often appear incompatible because of differing methods and theoretical underpinnings. In addition to the JDM literature, there is a large body of research on taxpayer attitudes. This group of papers is highly heterogeneous, differing widely in theoretical development and relevance.
We recommend, in conclusion, that future behavioral research in taxation be better grounded in social science theory, and that more attention be paid to the representativeness of subjects.
The purpose of this study is to evaluate the influence of justice, culture and love of money on ethical perceptions about tax evasion. As well as gender will strengthen…
The purpose of this study is to evaluate the influence of justice, culture and love of money on ethical perceptions about tax evasion. As well as gender will strengthen the influence of justice, culture and love of money on ethical perceptions about tax evasion.
The primary data were collected and analyzed using a popular component-based model called partial least square (PLS). PLS consists of two sub-models, measurement model or outer model and structural model or inner model. The measurement model shows how real or observable variables are latent variables to be measured. While the structural model shows the level of estimation between latent or construct variables.
The statistical analysis showed that neither the coefficient of gender (moderating variable) nor the interaction between gender and the exogenous variable are significant. Solimun (2010) explained that such moderating variable is called homologizer moderation (potential moderation). Homologizer moderation refers to variable that may potentially become a moderating variable influencing relationship between predictor (exogenous) and dependant variable (endogenous). This variable has no interaction with predictors or can be said to be insignificant on the dependent variable. In this study, gender is a potential moderating variable (homologizer moderation). Gender can potentially become a moderating variable influencing relationship between justice, culture and love of money and ethical perception on tax evasion. Gender does not have interaction with justice, culture and love of money or significant influence toward ethical perception on tax evasion.
There are very few studies on tax evasion from an ethical point of view so this study is not only important but also interesting because it shows that tax evasion is a classic problem taking place in nearly all countries that apply taxation system; cultural difference results in different views on ethical perceptions on tax evasion (Basri, 2015); this study uses the local wisdom of Balinese people, namely, Tri Hita Karana and thus, this study becomes relatively new; justice is one of the non-economic variables of tax compliance behavior (Darmawan, 2012), so that the researcher is interested in conducting further research on the effect of justice toward ethical perception on tax evasion; there are very few studies discussing love of money (Hnisz et al., 2013); therefore, research on the effect of love of money toward ethical perception on tax evasion is of necessity and the findings of previous studies that are inconsistent. The researcher predicted that there are contingency factors that influence the relationship between justice, culture and love of money toward ethical perceptions on tax evasion. As suggested by Baridwan (2012), gender, the moderating variable in this study, refers to masculine and feminine character as a dimension of social culture; this study is carried out in the Tax Service Office (KPP Pratama) of Badung Utara because during the 2015 tax year, KPP Pratama Badung Utara was one of the KPPs in Bali DGT Regional Office which experienced a decline in realization of revenues and a sharp decline in growth.
In this study, we develop reliable scales for measuring taxpayers' social norms toward tax compliance and explore the effect of social desirability bias and several…
In this study, we develop reliable scales for measuring taxpayers' social norms toward tax compliance and explore the effect of social desirability bias and several methodological issues that may affect behavioral tax and accounting studies. This study provides theoretical specificity to a potentially “decisive” (Alm & McKee, 1998) influence on tax compliance by drawing on Cialdini and Trost's (1998) taxonomy of social norms in developing our scale items. We describe in detail the methods that we used to develop these scales. On the basis of the responses of 218 experienced taxpayers, our results identify four separate social norm dimensions that correspond with the four social norm constructs identified by Cialdini and Trost. We also consider the effect of social desirability bias and find that these effects are mild for experienced taxpayers and are not directly related to compliance intentions. Finally, we also manipulate both the order of the items presented in the experiment and the form (online or paper-based) of the experimental instrument. While order and form effects do not interfere with the interpretation of the influence of social norms on tax compliance, we do find a significant presentation order effect driven by the paper condition, which suggests that online data collection may be preferable to uncontrolled paper and pencil administration.