An Experimental Examination of Factors Affecting Tax Preparers' Aggressiveness--A Prospect Theory Approach.

Abstract Duncan et at (1989) and Pei et al. (1992) provide evidence indicating tax preparers tend to communicate pro-IRS responses to aggressive clients. The purpose of this study is to re-address the aggressive client issue employing tax scenarios that are not explicit "red flags" to the IRS. The client's payment status is also incorporated. Kahneman and Tversky's (1979) prospect theory is used to predict the preparers' behavior. The sample consisted of 119 experienced tax preparers who were required to make recommendations on tax positions and determine whether or not they would include the deductions on a return. The findings indicated tax preparers are not affected by the client's payment status until exposed to the client's preference concerning a specific tax position. With an aggressive client, tax preparers were significantly more aggressive concerning tax issues. The aggressiveness was compounded by the client's payment status. Aggressive positions were highly accepted by preparers with aggressive clients in tax due situations. These results are contrary to Duncan et al. and Pei et at. Overall, these findings indicate tax preparers behave according to prospect theory when placed in a position of opposing the client.