The Relation between the Use of Tax Preparers and Taxpayers' Prepayment Position.

This paper presents evidence from 7,127 tax returns on the relation between tax preparer usage and taxpayers' prepayment position (refund/balance due) and total prepayments. Prepayment position is measured as total prepayments minus tax liability. Using a two-step estimation procedure that corrects for taxpayers' self-selecting return preparation mode, we find evidence of preparer effects on prepayment position and total prepayments. Specifically, paid-prepared returns have relatively larger refunds and smaller total prepayments. Together, this implies that paid-prepared returns have lower tax liabilities and that the reduction in tax liability is larger than the reduction in total prepayments,