Transcript powerpoint slides

THE INFLUENCE OF TAX PREPARERS
UPON INDIVIDUAL TAXPAYER
COMPLIANCE- SOME AUSTRALIAN
EVIDENCE
Ken Devos
Monash University, Australia
www.buseco.monash.edu
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
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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)
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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.
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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
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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?
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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.
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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.
•
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5. RESEARCH FINDINGS- Descriptives
Respondent Reasons
Evader
Penalty
Impose
(yes)
Evader
Penalty
Not
Impose
(no)
Nonevaders
Penalty
Impose
(yes)
Nonevaders
Penalty
Impose
(no)
Q7 Fined or penalised by
ATO?
150
(87%)
24
(13%)
26
(9%)
274
(91%)
Overstate deductions,
offsets
31
1
Understate income
42
10
Defraud Commonwealth
8
3
Fail to withhold/remit tax
13
0
Other
57
12
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RESEARCH FINDINGS- Chi-Square results
Relationship between Compliance
behaviour Q7 and
Pearson
Chi-Square
Evaders
Pearson
Chi-Square
Non-evaders
Agent representation Q19
p=0.000*
p=0.018*
Reason for agent representation Q20
p=0.000*
p=0.036*
Agree with conservative tax advice Q21(a)
p=0.078**
p=0.402
Retain/terminate agent based on this
advice Q21(b)
p=0.324
p=0.927
Agree with aggressive tax advice Q22(a)
p=0.139**
p=0.045*
Retain/terminate agent based on this
advice Q22(b)
p=0.075**
p=0.074**
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RESEARCH FINDINGS- Regression Results
Predictor Variables
Beta
St Error
Wald
Sig
Exp(B)
F1- Reasons for TA
representation
-Evaders
0.344
-Non-evaders
0.111
0.311
0.194
1.288
0.331
0.268
0.565
1.411
1.118
F2 – Aggressive/
Conservative
advice
-Evaders
-Non-evaders
-1.893
0.470
0.374
0.198
5.695
5.619
0.017*
0.018*
2.443
1.600
F3- Tax agent
termination or
retention
-Evaders
-Non-evaders
-2.442
-2.455
0.358
0.222
1.524
12.249
0.217
1.557
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0.000*
0.086
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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
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6. COMBINED FINDINGS MATRIX
Quantitative
Component
Research
Questions
RQ1 Reason for Tax Agent
Representation
-Evaders
-Non-evaders
Chi-Square
Test Results
√
√
Qualitative
Component
Regression
Results
×
×
RQ2 Tax Agent Advice
-Evaders
-Non-evaders
√ (qualified yes)
√ (qualified yes)
√
√
RQ3 Tax Agent retention or
Termination
-Evaders
-Non-evaders
√ (qualified yes)
√ (qualified yes)
×
√
Interview
Findings
√
√
√
√ (qualified yes)
__
__
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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.
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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)
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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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