How will the court decide? Tax experts and the estimation of tax risk

Kay Blaufus, Jonathan Bob and Matthias Trinks

No 150, arqus Discussion Papers in Quantitative Tax Research from arqus - Arbeitskreis Quantitative Steuerlehre

Abstract: Tax accounting and tax law concern the probability thresholds that can require the taxpayer to estimate the likelihood that a tax position would be upheld by a court. Tax complexity and the consequent ambiguity results in a reliance by most taxpayers on a tax expert estimate of this likelihood. This study examines whether the tax experts are able to accurately forecast the outcome of tax court decisions and compares tax expert predictions to those of laymen. Our results reveal no significant differences with respect to the forecasting performance of professional tax advisors and laymen. Moreover, the tax advisors exhibit a significantly higher level of overconfidence compared to laymen and the degree of overconfidence increases with professional experience. A comparison of two groups of tax experts, tax advisors and revenue agents demonstrates that the tax advisors exhibit the highest level of overconfidence and form stronger appeal recommendations that indicate a type of advisor bias.

Keywords: tax risk; overconfidence; client advocacy; tax controversy; forecasting (search for similar items in EconPapers)
JEL-codes: H20 K20 M40 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-acc, nep-for, nep-law and nep-pbe
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:arqudp:150

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