Wednesday, February 5, 2020
Alex Yuskavage (Office of Tax Analysis, U.S. Treasury Department) presents Seeking Professional Advice: The Effects of Tax Preparers on Compliance (with Jason DeBacker (South Carolina), Bradley Heim (Indiana) & Anh Tran (Indiana)) at Georgetown today as part of its Tax Law and Public Finance Workshop Series hosted by John Brooks and Brian Galle:
Professional and legal advisors, such tax preparers and lawyers, are expected to help clients to better understand and comply with the law. We test this expectation in the context of tax compliance, using data from IRS random audits. We exploit the diffusions of tax preparation services within a ZIP code and workplace as plausibly exogenous instruments for the taxpayers’ decision to adopt the preparation service. Contrary to the expectation, we find that professional tax preparers reduce tax compliance.
On average, tax returns that were filed with a professional preparer have audit adjustments that are roughly $3,100 larger than similar self-prepared returns. However, we find preparers under the Volunteer Income Tax Assistance (VITA) programs actually increase tax compliance. This indicates different motivations of professional advisors may lead to opposite effects in compliance.