The impact of multiple component reporting on tax compliance and audit strategies

Article Abstract:

An analysis extended the body of research on tax compliance by incorporating the multidimensional qualities of reported taxable income into a game-theoretic model of strategic auditing and tax compliance. This study departed from earlier investigations, which tended to focus on the misreporting of a single item, the net taxable income. In contrast, this model addressed different reporting and auditing issues not considered by a single-report framework. In addition, this model also allows the tax authority to audit return components in a sequential order. Results showed that segmentation of taxable income into a multi-component report minimizes general tax evasion and boosts net revenue collections of the tax authority. The study also found, however, that the effect on evasion is not consistent across taxpayers.

Auditing, Economics, Information theory, Game theory, Information theory in economics

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Contingent fees and tax compliance

Article Abstract:

The distributional and tax compliance effects of banning contingent fees for tax return preparation services were considered using a principal-agent model wherein a taxpayer hires a tax agent in an attempt to resolve various tax law uncertainties. The contract motivated and supported the practitioner's research efforts and induced the tax agent to make the preferred tax return reporting decision. Results indicated that banning contingent fees for tax return preparation services increased practitioners' fees. They showed that contingent fee contracts overcame moral hazard-associated dilemmas with no efficiency losses. They also suggested that contingent fee arrangements may lead to a rise in tax undercompliance.

Tax Management, Tax accounting, Tax research, Contingency fees

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Modeling judgments of taxpayer compliance

Article Abstract:

The feasibility of a model for predicting taxpayer compliance behavior is tested. Independent variables used in the judgment model include income amounts, income sources, cheating penalties, and rate structure. IRS Taxpayer Compliance Measurement Program data is used with the model to predict actual taxpayer compliance and to infer the relative importance of determinants of taxpayer behavior. Source of income was shown to be about three times more important as a behavior determinant than the next most heavily weighted variable. Results indicate that there is a potential for utilizing a derived judgement model as an effective way of predicting the impact of proposed tax policy changes on taxpayer compliance.

Research, Tax evasion, Tax returns

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