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THE INFLUENCE OF TAX PREPARERS UPON INDIVIDUAL TAXPAYER COMPLIANCE- SOME AUSTRALIAN EVIDENCE

THE INFLUENCE OF TAX PREPARERS UPON INDIVIDUAL TAXPAYER COMPLIANCE- SOME AUSTRALIAN EVIDENCE Ken Devos Monash University, Australia. PRESENTATION OUTLINE. 1. Introduction and Background 2. Prior Research Studies on Tax Preparers (tax, agents, tax lawyers, accountants, CPA, non-CPA)

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THE INFLUENCE OF TAX PREPARERS UPON INDIVIDUAL TAXPAYER COMPLIANCE- SOME AUSTRALIAN EVIDENCE

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  1. THE INFLUENCE OF TAX PREPARERS UPON INDIVIDUAL TAXPAYER COMPLIANCE- SOME AUSTRALIAN EVIDENCE Ken Devos Monash University, Australia

  2. PRESENTATION OUTLINE • 1. Introduction and Background • 2. Prior Research Studies on Tax Preparers (tax, agents, tax lawyers, accountants, CPA, non-CPA) • 3. Research Objective and Research Questions • 4. Research Method- Quantitative and Qualitative • 5. Research Findings of this study • 6. Combined Findings Matrix • 7. Summary and Conclusions • Tax Policy Implications • Limitations & Future Research

  3. 1. INTRODUCTION & BACKGROUND • Tax Preparers are engaged for a variety of reasons • Complexity of the tax law • Taxpayers’ fear of being penalised • Taxpayers’ desire to minimize tax payable • Tax preparers currently represent approx. 75 per cent of Australian Individual taxpayers and potentially have a large influence upon taxpayers’ compliance attitudes and behaviour. • The aspects of tax preparers as a variable which have been examined include, why taxpayers engage preparers, what factors influence preparer aggressiveness, the role of preparer penalties, but few have examined the relationship between preparer use and taxpayer compliance- Richardson and Sawyer (2001)

  4. 2.PRIOR RESEARCH STUDIES ON TAX PREPARERS • Role & Influence of Tax Preparers based on their own Views • Tomasic & Pentony (1990) examined the various TA roles by interviewing tax practitioners and ATO staff –taking a confrontational approach or negotiated settlements was arguable • Duncan, La Rau and Reckers (1989)- examination of both economic and non-economic factors which impact on decision making of tax professionals. The client’s risk orientation was significantly related to the tax consultants adopted position • Klepper, Mazuar and Nagin (1991) developed an econometric model to empirically test the influence of tax preparers upon the compliance behaviour of taxpayers. The findings revealed that the model predicts that an expert’s participation will discourage non-compliance on legally unambiguous income sources but encourage non-compliance on ambiguous sources.

  5. PRIOR RESEARCH STUDIES ON TAX PREPARERS • Role & Influence of Tax Preparers based on Taxpayers Views • Reinganum and Wilde (1991) developed an econometric model that aimed to characterise the equilibrium reporting behaviour of taxpayers. The findings reveal that the effect of practitioners on the voluntary reporting behaviour of taxpayers and on the enforcement behaviour and expected net revenues of the reporting agency can be quite complex. • Hite and McGill (1992) Employing a national survey of USA taxpayers investigated whether taxpayers agreed with preparers advice in ambiguous situations. Findings revealed taxpayers on average do not have a preference for aggressive tax advice. • Murphy (2004) Australian empirical study investigated how high risk taxpayers and high risk practitioners form their partnerships by examining aggressive taxpayers’ attitudes and perceptions of the Australian tax system- Some Tax Agent guidelines were recommended- promoter penalties

  6. 3. RESEARCH OBJECTIVE & QUESTIONS • Objective- Investigate whether or not a relationship exists between the type of advice provided by tax preparers and the compliance behaviour of Australian individual taxpayers (compliant and non-compliant) • 1. Is there a relationship between the reasons taxpayers engage tax preparers and their own compliance behaviour? • 2. Is there are relationship between taxpayers preference for aggressive or conservative advice from their tax preparers when faced with ambiguous tax law and their own compliance behaviour? • 3.Is there a relationship between taxpayers retaining/terminating their client/advisor relationship based on the advice they receive from their tax preparers and their own compliance behaviour?

  7. 4. RESEARCH METHOD • Two Components to the Research Method • Quantitative Component- mixed mode • Evaders -A mail survey was conducted for a random selection of personal taxpayers labelled (the evader) group. The sample frame was those personal taxpayers that, according to ATO records, had lodged tax returns for three income tax years, including 2004, 2005 and 2006 and had been audited and subjected to a penalty. The actual response rate received for this study was (174/636 effective distributions = 27.4%) • Non-Evaders- market research company which had access to a large database of people from the general population identified via demographical details was able to distribute an electronic version of the survey instrument to potential participants. A sample of 300 individual taxpayers labelled as (assumed non-evaders) was derived.

  8. RESEARCH METHOD • Qualitative Component • A semi –structured 30 -40 min interview was conducted and posed questions around the major themes of the wider study’. The data ideally sought was the personal account of participants’ attitudes to tax compliance and issues in relation to tax preparers gathered confidentiality at an interview. This procedure also assisted in confirming or denying issues which were raised initially in the surveys. • In the case of tax evaders, a small number of survey participants (six) who voluntarily provided their contact details were interviewed over the telephone.A small group (seven) of taxpayers from the general population (i.e. non-evaders) who were prepared to be involved in the study were contacted by the market research company and also happy to be interviewed in person.

  9. 5. RESEARCH FINDINGS- Descriptives

  10. RESEARCH FINDINGS- Chi-Square results

  11. RESEARCH FINDINGS- Regression Results

  12. RESEARCH FINDINGS- Interview Findings • Evaders -tax agents’ recklessness and evaders low tax ethics had contributed to their non-compliance. • Tax agents had taken an aggressive approach in providing advice and the tax evaders felt obliged to follow that advice -. Attwell and Sawyer (2001) • Exposure to tax minimization schemes and potential tax loopholes was evident • Less value was placed on Tax System and ATO –Murphy (2004) • Non-Evaders- availability of tax agent representation an issue unfair advantage for those who could afford it • Held the view that greater tax refunds were possible through tax agents

  13. 6. COMBINED FINDINGS MATRIX

  14. 7. SUMMARY & CONCLUSIONS • RQ1 Tax Agent Representation - support was found in both the chi-square tests and interview findings in the evader and non-evader samples. Consistent with previous studies (Hite and Mc Gill (1992) and Murphy (2004). Overall, the answer to RQ1 was yes and H1was accepted. • RQ2 Tax Agent Advice- when faced with ambiguous tax law, the advice impacted upon the compliance behaviour of both evaders and non-evaders, as it was generally supported by all research results although in some respects qualified. There was no clear evidence of either aggressive or conservative advice impacting upon compliant taxpayers in the interviews. Overall, the answer to RQ2 was a qualified yes and H2 was accepted in part. • RQ3 Tax Agent Retention/Termination- produced mixed results. No interview evidence and some marginally significant statistical results. However, tax agents tended to be retained despite the type of advice that was offered. Overall, the answer to RQ3 was a qualified yes and H3 was accepted in part.

  15. SUMMARY & CONCLUSIONS • Tax Policy Implications • Due to tax loopholes and complexity -the integrity of overarching principles which aim to bring about compliance with the spirit of the law as opposed to the letter of the law needs to be defended. See McBarnet (2001), McBarnet and Wheelen(1999). • Formal guidelines or accreditation or registration procedures regarding professional conduct need to be closely monitored Murphy (2004) • Tax Preparer penalties are they sufficient? (Div 290 Sch 1 TAA 1953) • Tendency to trust in and retain the services of a particular tax preparer- risk of staying with a tax preparer that becomes incompatible. Tax preparer and taxpayer expectations are not necessarily consistent. – (the lowest tax liability that is defensible?) Hite et al (1992) and Christensen (1992)

  16. SUMMARY & CONCLUSIONS • Limitations of the study • Sample representation • Number of interviews conducted (small tax agent representation amongst non-evaders) • Demographic variables not statistically analysed • As the survey questions only dealt with deductions, aggressive reporting issues involving income may have produced different results. • Data collected prior to introduction of Division 290 TAA 1953 and Tax Agents Services Act 2009 • Future Research • proposed that further studies could be undertaken from the tax preparers’ perspective. • Expanding the study to incorporate demographic variables or the impact of tax preparer ethics. • Further cross –cultural research in this area could be undertaken

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