**5. Interactions of the taxpayer and the tax practitioner**

Research on the interaction between taxpayers and tax practitioners exists much less than is required, providing the immense amount of time and money spent on tax compliance [20]. Kaplan et al. [5] emphasize the role of tax practitioners in tax compliance by demonstrating that if a tax practitioner provides aggressive tax advice, the taxpayer is likely to take the aggressive tax position that might not be upheld in a tax audit. On the contrary, Hite and McGill [47] argue that taxpayers tended to disagree with aggressive advice and to agree instead with conservative advice. Or, there is also evidence that conservative taxpayers defer to the opinion of aggressive tax practitioners [48]. Not surprisingly, there are taxpayers who will still accept whatever types of advice their practitioners recommend.

trials and tax audits as revealing the truth about the matter, many practitioners approach their

Some tax practitioners promote unacceptable tax minimization arrangements, assisting their clients in devising strategies to exploit legal ambiguities [36]. They are inclined to view testing the outer limits of the tax law as a natural and acceptable feature [37]. In recent decades, their role has become more complicated and sophisticated with the special tax knowledge required to facilitate tax avoidance [38]. For example, Sikka and Hampton [39] criticize that accountancy firms have sold tax avoidance schemes to corporations and wealthy individuals,

Nevertheless, it is important to distinguish legally permissible tax planning from potentially unacceptable tax scheme. Adapting motivational postures theory [40], Kang [41] coined two terms indicating differentiated features of tax avoidance: deferential avoidance and defiant avoidance, while deferential avoiders stand firm within the boundaries of the law, defiant avoiders try to push the boundaries of the law's intent by self-serving in terms of law

The role of tax practitioners has been viewed as representative of both taxpayers and the government [42]. One might argue that they have to act as advocates for their clients and to serve as intermediaries in the tax system. Tax practitioners should be concerned not only with their client's interest but also with general publics in conducting their practices. Indeed, OECD [43] published a report highlighting the importance of trilateral relationships among tax authorities, taxpayers, and tax intermediaries in promoting taxpayer compliance. In a nutshell, tax practitioners have a legitimate and efficient function as intermediaries or "knowledge brokers" between taxpayers and revenue authorities [44]. They can provide a useful line of communication between tax inspectors and taxpayers. Furthermore, tax professionals can provide a check-and-balance function that prevents tax authorities' possible extortion or tax inspectors' harassment on the part of taxpayers, thereby safeguarding the equity of a tax system [7]. There are a variety of expectations for tax practitioner work, and sometimes an "expectation gap" arises from the misperception of each other's expectation. Expectations gap refers to the difference between client expectations and the professional's perceptions of those expectations and vice versa [20]. Christensen [45] argues that tax preparers' perceptions of what clients expect from tax service differ significantly from clients' expectations. Tax preparers may rationalize it is their clients who demand aggressive tax reporting. Schisler [24] maintains that many taxpayers insist on aggressive tax advice. In contrast, according to Tan [46], taxpayers favor conservative tax advice if the taxpayers' main objective is filing an accurate tax return.

This issue is worthwhile to be explored in more depth in the following section.

Research on the interaction between taxpayers and tax practitioners exists much less than is required, providing the immense amount of time and money spent on tax compliance [20]. Kaplan et al. [5] emphasize the role of tax practitioners in tax compliance by demonstrating

**5. Interactions of the taxpayer and the tax practitioner**

job as being able to negotiate the best settlement for their clients [35].

which they refer to as tax solutions or tax strategies.

interpretation.

236 Taxes and Taxation Trends

For the tax practitioner, clients' risk preferences could influence the willingness of practitioners to recommend aggressive positions [49]. Cloyd [50], Cuccia et al. [51], and Schisler [24] indicate tax practitioners' tendency to recommend more aggressive positions when taxpayers are more aggressive (risk seeking). Notably, Duncan et al. [52] found the opposite evidence showing the more risk-averse the taxpayer, the more aggressive the tax practitioner, and the more aggressive the taxpayer, the more conservative tax position recommended by the practitioner. Furthermore, Bobek et al. [53] examined how the role of client advocacy influenced tax professionals' decision processes and outcomes and provided empirical results revealing that client characteristics influence tax professionals' advocacy attitudes. These findings suggest that taxpayers and tax practitioners' decisions are interdependent, and studies on their interaction dynamics could be a promising approach to find new insights into tax compliance.

Wurth and Braithwaite [54] underline that practitioners are responsive to influences from many sources—clients, tax authorities, professional associations, governments, international bodies, and the organizations and cultures. For example, Doyle et al. [55] investigated the moral reasoning of tax practitioners in social contexts and in tax contexts, and they found tax practitioners' significantly lower level moral reasoning than nonpractitioners in tax contexts. The study implies that client advocacy may deter tax practitioners' moral reasoning. Reckers et al. [23] pointed out that less important taxpayers are more likely to receive more conservative advice from the tax practitioners. On the contrary, Bandy et al. [56] asserted that economic importance of the taxpayer had little effect on tax practitioners' willingness to be aggressive in terms of providing advice or signing aggressive tax return. Spilker et al. [57] provide evidence that tax practitioners interpret ambiguity in the tax law differently in planning than in compliance stage because they are more vulnerable to problematic tax advice that might result in litigations and reputational loss.

In connection with taxpayer compliance, Practitioner-Client role model developed by Tan [58] recognizes two parties' expectations, and behavioral dynamics can emphasize that how taxpayers and tax practitioners interact with each others are likely to affect each other's tax decisions. Similarly, The Wheel of Social Alignments put forth by Braithwaite and Wenzel [59] synthesizes the drivers of tax compliance regarding tax practitioners as alternative authorities to tax officials.

Some taxpayers exhibit their preference of conservative advice over aggressive one. However, Sakurai and Braithwaite [60] show that some taxpayers prefer "no risk no fuss" type. As with their diverse motivational postures [40], it is natural of taxpayers to exhibit diversity in their preference over tax advice as well as tax position. It is therefore in communicating with their clients, tax practitioners should educate, persuade, and encourage taxpayers to acknowledge the responsibility for their decisions in order to reduce expectation gap [61]. In many cases, ineffective communication is attributable to the failure to achieve compliance procedures accompanied by unintended consequences. The absence of clear communication and the failure to make reasonable enquiries when information or documentation provided by a client appears to be inaccurate or incomplete [62] tend to engender the disappointment in their tax service experienced.

letter of the law and a respectful attitude toward the spirit of the law and fiscal policy [66], tax practitioner compliance may as well be construed in their decisions as well as underlying attitudes toward clients, colleagues, and the tax system. As a service provider, the tax practitioner must strive to reduce inconsistencies between expectations and experiences. As a member of the professions, the tax practitioner refrains from abusive tax schemes that can stimulate institutional corruptions. As a professional, the tax practitioner should safeguard the integrity of the tax system. In short, the tax practitioners should be carefully place themselves between tax

Tax Practitioner Compliance

239

http://dx.doi.org/10.5772/intechopen.74216

Tax practitioners' noncompliance, in its extreme, occurs when they ignore clients' legitimate right to reduce tax dues, but in its other extreme, tax practitioner noncompliance ensues from their acceptance or collusion of tax evasion. It is therefore necessary for tax authorities to acknowledge that tax practitioners play a role of effective interventions to improve taxpayer compliance. Above all, the practitioners are the ones to prevent taxpayers from taking overly aggressive or/and illegal tax positions. Furthermore, business taxpayers and their tax practitioners can be highly interdependent for tax practitioners can become business confidants [67]. There are many areas of research that have been understudied. Among them lies the conflict of interest between taxpayers and tax practitioner. Although the tax practitioner is hired by the taxpayer, they may act in accordance to their own interest rather than to the benefit of clients. This type of problem mostly arises from the information asymmetry between the taxpayer and the tax practitioner. Some practitioners may take advantage of private information to their own merit. The conflict of interest between taxpayers and tax practitioners that is

authority and their clients as watch dogs to maintain the integrity of the tax system.

worthwhile to be explored to establish a complete body of tax compliance literature.

[1] Torgler B. Can tax compliance research profit from biology? Review of Behavioral Eco-

[2] Pickhardt M, Prinz A. Behavioral dynamics of tax evasion – A survey. Journal of Economic Psychology (Special Issue on Behavioral Dynamics of Tax Evasion). 2014;**40**:1-19

[3] Alm J, Kirchler E, Muehlbacher S. Combining psychology and economics in the analysis of compliance: From enforcement to cooperation. Economic analysis and Policy.

Address all correspondence to: minjokang@yonsei.ac.kr

CPA, School of Business, Yonsei University, Korea

nomics. 2016;**3**(1):113-144

2012;**42**(2):133-151

**Author details**

Minjo Kang

**References**

Tax practitioner self-seeking behavior together with compliance cost can afford unique opportunities to explore taxpayer decision. Tax law complexity increases the cost of compliance, and compliance costs are widely regarded as high. For the part of taxpayers, it may seem unfair to hire a tax professional in order to understand the laws. Taxpayers may expect their compliance cost to be offset by the tax service. If they deem the service fee as a mere expense accompanied by no additional benefit, they will be likely to be more aggressive in order to restore equitable condition. For instance, Jackson et al. [63] well demonstrated how taxpayers and tax practitioners decisions are interrelated. Drawing on mental accounting theory, they postulate mental aggregation of preparation cost with taxes, and tax professionals may place their clients in positive prepayment positions. The concept of mental accounting derived from research on prospect theory describes the set of cognitive operations used by individuals to organize, evaluate, and keep track of financial activities [64]. Then, they provide evidence that tax return preparation fees are larger for taxpayers who receive tax refunds than for taxpayers who owe additional taxes. It is argued that compliance costs paid to the tax preparer and the expected tax refund occur in the same mental account. Thus, taxpayers who have a favorable mental representation of tax return preparation fees may be willing to pay for higher costs incurred by tax practitioners.
