An Empirical Model of Taxpayer Tax Preparer Usage

• Activity Number: 383
• Type: Contributed
• Date/Time: Thursday, August 15, 2002 : 8:30 AM to 12:20 PM
• Sponsor: Business & Economics Statistics Section*
• Author(s): Raymonda Burgman*+
• Affiliation(s): DePauw University
• Keywords: Tax Preparer ; Tax Law ; Revenue Reconciliation Act of 1993 ; Audit ; Tax Credits

Abstract

The paper demonstrates the evolving and important relationship between tax preparers and taxpayers. Using the 1994 Individual Public Use File from the University of Michigan, one can determine why taxpayers seek the advice of tax preparers. I enhance the typical model with the inclusion of geographically related audit probabilities, from the Transactional Records Access Clearinghouse at Syracuse University, as well as an indicator for the earned income tax and childcare credit. A post Tax Revenue Act of 1986 taxpayer characterization emerges. As the United States embarks on new tax legislation, one must understand changes imposed by the Clinton Administration's Revenue Reconciliation Act of 1993, introduced to balance budgets, influenced taxpayer decisions to seek advice. Findings from a logit model suggest that married, elderly, and self-employed individuals employ tax preparers. In addition, individuals completing forms or schedules tend to seek advice. While the childcare credit is highly significant in the decision to seek advice, the same does not appear true for the earned income tax credit or the audit probability.