WHAT YOUR TAX ADVISOR WON’T TELL YOU: THE ROLE TAX PREPARERS PLAY IN TAXPAYER COMPLIANCE - AN EMPIRICAL INVESTIGATION WITH POLICY IMPLICATIONS

Sagit Leviner Dr., SUNY Buffalo
Kyle Richison, IRS, National Headquarters Office of Research, Analysis, and Statistics (Washington, DC).

Abstract

This paper underscores the growing need to shed better light on the taxpayer-preparer relationship and its effect on the tax system and its administration. To this end the paper undertakes an empirical analysis of U.S. individual tax returns looking at three variables. The two independent parameters include: (1) tax return characteristics: by line item and type of return, and (2) preparation mode: whether the return is self prepared; or, if prepared by someone other than the taxpayer, by which type of a preparer. The third, dependent, variable applied is the compliance or noncompliance of the return examined. The analysis draws from 3,457 tax returns where taxpayers claimed the Earned Income Tax Credit (EITC) for Tax Year 1999. These returns have all been subject to either face-to-face or correspondence audit and provide a uniquely thorough pool of data presently unavailable for the general population. By offering a taxonomy of noncompliant returns the paper seeks to explore both the motives behind and facilitators of tax noncompliance so as to better ensure the integrity of the tax system and its administration.