An Examination of Taxpayer Preference for Aggressive Tax Advice

Previous theoretical work has found that taxpayers will report higher incomes when tax law is ambiguous and uncertain, yet theoretical work has also shown that there will be lower compliance on returns prepared by practitioners if preparer penalties are low. Archival and behavioral studies have documented aggressive tax reporting on professionally prepared returns, and practitioners assert that their clients insist on such aggressive tax reporting. This study experimentally examined taxpayer preference for aggressive advice using a national sample of U. S. taxpayers. The experiment investigated whether taxpayers agreed with preparers' advice in ambiguous situations that varied by type of preparer recommendation (aggressive or conservative reporting position), probability of audit (high or low), and whether or not there would be a severe penalty. The findings suggest that taxpayers, on average, do not have a preference for aggressive tax advice. The subjects tended to disagree with aggressive advice and agree with conservative advice. Hence, the literature positing cautious taxpayer behavior under uncertainty is supported, and no evidence is found supporting a general taxpayer demand for aggressive tax reporting.