[An area of concern to tax policymakers is the role of third-party preparers in income tax reporting. This research examines the degree of consistency in judgments of preparers subject to differing degrees of governmental regulation. Economic theory of regulation suggests that CPAs, who are subject to a higher degree of government regulation, would be expected to recommend and justify more pro-taxpayer positions in ambiguous areas of tax law than would unlicensed preparers. This hypothesis was tested by administering a set of tax cases with a high degree of uncertainty regarding the correct tax status to groups of CPA and non-CPA tax practitioners. CPAs were found to be consistently more pro-taxpayer than were non-CPAs.]

ABSTRACT: An area of concern to tax policymakers is the role of third-party preparers in Income tax reporting. This research examines the degree of consistency in judgments of preparers subject to differing degrees of governmental regulation. Economic theory of regulation suggests that CPAs, who are subject to a higher degree of government regulation, would be expected to recommend and justify more pro-taxpayer positions in ambiguous areas of tax law than would unlicensed preparers. This hypothesis was tested by administering a set of tax cases with a high degree of uncertainty regarding the correct tax status to groups of CPA and non-CPA tax practitioners. CPAs were found to be consistently more pro-taxpayer than were non-CPAs.

*University of Southern California; tUniversity of Colorado at Boulder. We would like to thank Gilbert Bloom of KPMG Peat Marwick, Bob Rosen of Ernst & Young, Wayne Gazur, Robert Jamison, Sally Jones, Stewart Karlinsky, and David Mason for their assistance in validating the instruments; Eugene Willis and the AICPA for allowing us to collect data at the National Tax Education Program; Stephen Conrad of Arthur Andersen, John Lanning of KPMG Peat Marwick, Jerry Marrs of Ernst & Young, and Randy Stein of Coopers & Lybrand for allowing us to collect data at their respective firms; Minou Bohlin, Linda Levy, David Mason, and Paul Walker for their research assistance; and Vairum Arunachalam for his assistance in collecting data. The authors also gratefully acknowledge the helpful comments of three anonymous referees, Alison Ashton, Robert Ashton, C. Brian Cloyd, David Frederick, Joan Luft, Robert Libby, Laureen Maines, Mark Nelson, Michael Roberts, Frank Selto, D. Shores, Ira Solomon, Rick Tubbs, S. Mark Young, and workshop participants at Arizona State University, Cornell University, Duke University, Indiana University, the University of Illinois Tax Symposium, the Journal of Accounting Research Conference, University of Texas at Arlington, University of Utah, and University of Wisconsin. Finally, the financial support of the KPMG Peat Marwick Foundation and the University of Colorado is gratefully acknowledged. 1 We infer expertise in this study from the level of performance in a specific task, here issue identification in tax planning. This inference is consistent with much of the literature on expertise in accounting and other disciplines (e.g., Bonner and Lewis [1990],