**2. The conceptualization of tax compliances**

discovering factors that shape taxpayer compliance behavior. However, most of them focus

Taxation is a highly structured process of institutionalized entities like taxpayers, tax practitioners, tax administration, and up to government and tax lawmakers [2]. Besides, tax compliance is a complex phenomenon in the actors in the field, and their interactions have a great impact on individual taxpayers' behavior [3]. Hence, lack of research on important entities can undermine our understanding of tax compliance behavior that is intimately intertwined [4].

In the real world, professional tax practices are highly relevant to determine taxpayer compliance. Tax practitioner can exert considerable influence on taxpayers in the tax compliance process by either helping them to enforce or exploit the tax law [5]. Many taxpayers, being helpless of overwhelming volumes and mysterious jargons in the tax laws, resort to the assistance from tax professionals who are well-informed of the complex tax rules. Moreover, having limited resources to run their business, taxpayers often defer to tax practitioners for the important decisions about their own tax matters. Therefore, it is essential to understand what makes the practitioners compliant and how they achieve compliance in taxpayer compliance process. However, scientific studies on tax practice in relation to taxpayer compliance are scarce. Furthermore, there is not a widely accepted definition of tax practitioner

The main objective of the chapter is to provide tax scholars, tax practitioners, and tax authorities with a better understanding of tax practitioner compliance in connection with taxpayers' choice of their tax position. Toward this end, I glean useful knowledge from research findings and synthesize them in order to clarify the meaning of tax compliance in relation to taxpayer and tax practitioner and their interactions. Herein, I refer to tax practitioners as private sector tax professionals who help taxpayers to prepare their tax returns and/or provide advice on tax

Tax practitioner behavior is of great concern to taxpayers, as well as tax authorities. Shafer and Simmons [6] maintain tax advisors have abandoned concern for the public interests in favor of commercialism. The dilemma mainly arises from their dual role as a client advocate and gatekeeper safeguarding the fairness of the tax system. In other words, an aspect of tax practitioner compliance relates to the conflict of client advocacy and professional responsibilities [7]. Mason and Garrett Levy [8], p. 127, defines client advocacy as "a state of mind in which one feels one's primary loyalty belongs to the taxpayer. It is exhibited by a desire to represent the taxpayer zealously within the bounds of the law and by a desire to be a fighter

For example, a noncompliant practitioner is willing to accept overly aggressive or, in its extreme, a fraudulent tax reporting if the probability of detection and punishment is perceived to be relatively low. However, an important question still remains unresolved. Should tax practitioner aggressiveness in terms of recommending tax treatment be deemed noncompliant without any consideration whatsoever? Is tax practitioner compliance achieved if the practitioner takes too conservative a tax position in favor of the government which, arguably,

matters including accountants, paid preparers, lawyers, etc.

on taxpayer's behavioral responses to the tax system and fiscal policy.

compliance.

232 Taxes and Taxation Trends

on behalf of the taxpayer."

represents public interests?

Taxpayer noncompliance refers to any failure to meet tax obligations, and it does not necessarily require intention to pay less tax than the law demands. It may result from deliberate underreporting, inadvertent misreporting, or nonfiling of tax return. The tax gap, which is a popular measure of noncompliance in an aggregate level, is defined as the difference between actual tax collected and the potential tax collection under full compliance [10]. It consists of nonfiling, underreporting, and underpayment of tax [11], which represent filing noncompliance, reporting noncompliance, and payment noncompliance, respectively.

Tax evasion and tax avoidance consist in deliberate act of noncompliance. While tax evasion refers to intentional underpayment of taxes by deliberate nondisclosure of taxable resources [12], tax avoidance is widely considered a legal way of reducing tax dues. Tax avoidance, however, is often against the spirit of the laws, thereby has a chance to be challenged by tax authorities, which eventually falls under the category of noncompliance.

The majority of scientific studies on tax compliance address the problem of individuals' tax evasion decision in the form of underreporting taxable income or overclaiming unwarranted deductions. In particular, most of them are concerned with SAS, in which taxpayers are given opportunities to underreport, and their initial tax liabilities are determined by self-declaration, while the true income will not be observable by tax authorities unless a tax audit is conducted. Thus, tax noncompliance, in the narrowest sense, refers to taxpayers' dishonesty in their tax reporting.

However, it should be noted that, from the viewpoint of taxpayers, noncompliance problem lies not only in undercompliance but also in overcompliance: noncompliance can result not only from underreporting or underpayment but also from overreporting or overpayment. Inadvertent noncompliance may result from the errors and mistakes of taxpayers or tax practitioners. Nevertheless, the researchers and policymakers have paid little attention to the problem of overcompliance. It may be that taxpayers are assumed to be rational enough to deal with tax matters, and thus, discovering of underreporting should be deemed the consequence of their intentional misconduct. On the basis of rationality assumptions, any mistakes may be seen as not due to incompetence but to a lack of commitment to declare a correct tax return [13].

Tax laws are increasingly voluminous, and the law provisions are sometimes terribly complicated to be fully understood. It takes a lot of time and effort to meet the tax obligations, and even if they pay much attention enough to avoid inadvertent errors and mistakes, tax liabilities are often subject to uncertainty from varying interpretations of ambiguous tax situations. For a further understanding, the following section discusses the issues of tax law complexity and ambiguity.

basis to explain tax practitioner's behavior. According to the Prospect theory, people exhibit risk seeking tendency in a loss situation, while being risk averse in a gain situation. Newberry et al. [26] found that CAPs were more likely to sign a tax return containing a large and ambig-

Tax Practitioner Compliance

235

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

However, tax practitioner studies tend to avoid compliance or noncompliance, directly focusing instead on aggressiveness [27]. Phillips and Sansing [28] underline that conservative and aggressive are *ex-ante* labels that characterize a reporting position when the law is ambiguous. They go on emphasizing that taxpayer compliance is an *ex-post* and hypothetical concept, because in the real world, many of the reporting positions will not be evaluated by tax inspectors. Put differently, contrary to taxpayers' common beliefs, in many cases, tax compliance is not deterministic in spite of tax practitioners being involved, but it is stochastic depending on

There are a variety of motives in hiring tax practitioners. As it is, the role of tax practitioners in tax compliance process can be best understood considering the multifaceted aspects of tax service. Frecknall-Hughes and Moizer [29] argue that the work of tax practitioners in its broadest way can be divided into two kinds: tax compliance and tax planning/avoidance advice; the formal relates to resolve uncertainty in which tax position can be correctly settled, and the latter is associated with ambiguous tax situations in which legitimate tax position is not deterministic. Stephenson [30] discovered four separate constructs underlying the demands for tax practice: legal compliance, time savings, money savings, and protection

Many taxpayers tend to claim accuracy as their main objective in tax preparation [31]. In that case, the quality of tax service is to ensure the tax returns do not contain inadvertent errors or omissions. It is somewhat evident that taxpayers hire tax practitioners to save time and effort required to achieve compliance. They will delegate tax return preparation to the practitioner, if the opportunity cost of self-reporting exceeds the service fee. Tax practitioners are also expected by their clients to reduce the chances of audit and penalty, thereby lowering monetary and psychic costs associated with audits that would otherwise have occurred [32]. Tax practitioners may provide professional assurance of compliance by verifying and assessing

Every tax legislation, however, contains "gray" areas that produce ambiguous tax situations. Tax practitioners cannot get rid of entire uncertainty, but they can only gauge the likelihood the position not being upheld by the tax court. The tax position is subject to some uncertainty and hence may step into a process of negotiation with the tax authorities [29]. Indeed, Frecknall-Hughes and Kirchler [34] came up with negotiation theory as a conceptual framework for understanding the nature of tax practice. They argue that the tax advisor/preparer and the tax inspector (who are the employee of revenue authority) are negotiators who act respectively on behalf of a client and the tax authority. While laypersons may see the task of

uous deduction to retain an existing client than to gain new one.

the enforcement activities of the tax administration.

**4. The work of tax practitioners**

acceptable tax positions in the SAS [33].

from the tax authority.
