AN INFORMATION INTEGRATION THEORY ANALYSIS OF TAX PREPARERS' PERCEIVED RISK OF REPORTING AGGRESSIVELY ON CLIENTS' INCOME TAX RETURNS

Prior research shows that income tax return preparers influence the income tax compliance decisions of their clients. Information about the risk that income tax return preparers perceive in reporting aggressively on their clients' income tax returns may help the Internal Revenue Service (IRS) reduce the tax gap that exists in the United States today. This study investigates the cognitive algebra that income tax return preparers use to combine the probability of the IRS's assessing penalties for misstatements on their clients' income tax returns with the consequences (penalties, etc.) of those decisions in forming risk perceptions for reporting aggressively on their clients' income tax returns in both single play decisions (those that affect only one client) and multi-play decisions (those that affect several clients). Information integration theory was used to determine the cognitive algebra that income tax return preparers use to form their risk perceptions.; The subjects were mostly CPAs who are either sole practitioners or partners in small CPA firms. The ANOVA results of a between subjects study reveal that income tax return preparers use an additive model to combine the probability of an IRS examination and the consequences of the examination in arriving at their perceived risk for reporting aggressively on their clients' income tax returns regardless of the number of clients involved.