YEAR-TO-YEAR CHANGES IN THE EARNED INCOME TAX CREDIT INSTRUCTIONS INCREASE COMPLEXITY AND DECREASE COMPLIANCE (TAXES)

The purpose of this study was to examine the effect that changes in the income tax law have on complexity, and the effect that changes in complexity have on compliance. This study identified one part of the individual income tax law to define and measure the relationship between change and complexity, and complexity and compliance.; A quasi-experiment was conducted using the Nonequivalent Control Group Design developed by Campbell and Stanley. The published instructions for the Earned Income Tax Credit (EITC) for three consecutive years (1989, 1990, 1991) were assigned to three groups of graduate students. Complexity of the instructions published by the Internal Revenue Service for taxpayer use were measured using the Reading Complexity Elicitation (RCE). The RCE was developed by others for use in measuring the reading complexity of tax materials. Other measures of complexity included time to read instructions, word count, and grade level of instructions. Each group read the instructions and completed the RCE. Relying solely on the instructions and their prior tax knowledge, they answered tax questions and solved tax problems. Compliance was measured by correct responses to the tax questions and problems. The pretest and postest provide evidence of prior knowledge. The data was analyzed using ANOVA and ANCOVA.; This study suggests that changes in the tax law contribute to complexity. Changes in the published instructions for the EITC caused by changes in the underlying statute did have a statistically significant effect on complexity. Differences in complexity of the instructions measured by the RCE were statistically significant when education and tax knowledge were controlled. Differences in complexity measured by completion time were statistically significant. The pattern of differences of the other measures of complexity (word count and grade level) were consistent with the RCE and completion time.; Changes in complexity did not have a statistically significant effect on compliance. The tax questions and tax problems were not valid or reliable operational definitions for compliance.; The RCE is a valid and reliable measure of reading complexity. The RCE should be used in additional studies of tax material.