The prospects of taxpayer agreement with aggressive tax advice

This study examines the extent to which taxpayers agree with aggressive tax advice under a variety of conditions. It extends prior taxpayer aggressive ness research by applying prospect theory and the theory of regulation. The study reports the results of an experiment that uses a nationwide, random sample of US taxpayers as subjects. The subjects read a scenario that invol ves an ambiguous tax situation in which their professional tax preparer adv ises an aggressive position. The subjects then state the degree to which th ey agree with the aggressive advice. The experiment manipulates prepayment position (refund vs. balance-due) and preparer type (certified public accou ntant [CPA] vs. non-CPA) between subjects. The results, after controlling f or economic sanctions and risk propensity, show that taxpayers are more lik ely to agree with aggressive advice when they are in a balance-due prepayme nt position and when they use CPAs as preparers. The study has implications for tax policy makers and enforcement agencies. (C) 2001 Elsevier Science B.V. All rights reserved.