A will and a way: An analysis of tax practitioner preparation compliance

Abstract

This thesis proposes a propensity and opportunity model for tax practitioner preparation compliance. The model integrates the existing empirical tax practitioner compliance knowledge into a theoretical framework through an adaptation of Nagin and Paternoster’s (1993) individual differences and rational choice framework. The premise of this thesis is that preparation non-compliance occurs when there is both a will (propensity) and a way (opportunity). One of the most compelling findings was discovered through the development of the preparation compliance variable. Rather than a unitary construct with simple linear relationships with other variables, it was found that practitioners form distinct and very different clusters of preparation compliance. Four practitioner clusters were revealed. The Duteous cluster of practitioners exhibited the most virtuous approach to preparation practice and had the highest level of compliance within their clients’ tax returns. The Contingent cluster reported an intermediate commitment to compliant practice and client return compliance that was contingent on transaction visibility. The Aggressive cluster held the least compliant approach to preparation practice and reported the highest level of non-compliance within their clients’ returns. The Outlier cluster was an extreme version of the Aggressive pattern of results. While these groups clearly represent different levels of compliance (depicted in this thesis as the teardrop of practitioner compliance with a compliant base (Duteous) and non-compliant tip (Outliers)), gone was the assumption of compliance linearity. In its place was the knowledge that the practitioner population is not homogeneous, but instead comprises distinct practitioner types. Support was found for the propensity and opportunity model in the prediction of practitioner teardrop cluster membership. Both the higher-order constructs of propensity and opportunity were significant in the prediction of cluster membership at each ascending level of the teardrop. However, the features of propensity and opportunity that differentiated the lower teardrop practitioners were different to those that differentiated the upper teardrop practitioners. In differentiating between the Duteous and Contingent clusters, the propensity construct was characterised by an appetite for risk and power (lower for the Duteous), coupled with stronger commitment to business best practice and to the identity of being a competent practitioner among the Duteous. Opportunity was characterised by a perceived likelihood of success in preparing non-compliant returns and higher ambiguity of clients’ tax affairs, coupled with the perception of lower likelihood of detection for non-compliance. Different aspects of propensity and opportunity assumed importance in differentiating between the Contingent and Aggressive clusters. Propensity was characterised by a lack of preparation ethics and opportunity by ambiguity of clients’ tax affairs. These results have important implications for the regulation of tax practice. Tax authorities must recognise that there are multiple distinct groups of practitioners who hold different propensities and perceive different opportunities for non-compliance. Thus, the drivers and obstacles found for the population as a whole will not uniformly apply to sub-groups within that population. As such, the teardrop clusters require tailored regulatory strategy for optimal preparation compliance.