Perceptual differentiation with regard to penalties in professional tax practice
This study was conducted to explore the perceptions of tax practitioners regarding several tax penalties which Congress has enacted in recent years. The penalties which were investigated are the penalty for valuation overstatement on income tax returns (I.R.C. Section 6659), the penalty for valuation understatement on estate and gift tax returns (I.R.C. Section 6660), the penalty of a higher interest rate on tax motivated transactions (I.R.C. Section 6660, and the penalty for substantial understatement of tax liability (I.R.C. Section 6661(d)). These penalties were created by Congress with the objective of reducing the number of taxpayers who play the "audit lottery." All of the penalties investigated are imposed upon the taxpayer rather than the tax practitioner, but have a strong potential impact on the tax practitioner (i.e., civil liability and professional ethics). The study was conducted using personal interviews and a questionnaire. The subjects of the study were sixty-five tax professionals from the Houston, Texas area, including attorneys, certified public accountants, and attorney/certified public accountants. The results of the research were analyzed utilizing nonparametric statistics, including the Chi-Square test of significance for nominal data and the Spearman's rank-order correlation coefficient for ordinal data. The results of the research indicate that the penalties investigated are perceived as having an effect on the aggressive tax planning of those interviewed. The penalties for valuation overstatement, valuation understatement, and a higher rate of interest on tax motivated transactions are not perceived as having a significant impact on the routine procedure of the respondents, but the penalty for substantial understatement of tax liability is perceived as having a significant effect on routine procedure. Finally, there was no significant difference between the perceptions of attorneys and certified public accountants with regard to the effect of the penalties investigated on aggressive tax planning. There were significant differences between the perceptions of attorneys and certified public accountants with regard to the effect of the penalties on routine procedure and with regard to general perceptions of the penalties.