Tax Return Preparers and Tax Evasion

Abstract

The IRS has determined that the largest amount of tax evasion is associated with a relatively small percentage of returns prepared by tax practitioners. Tax practitioners can generally serve in three roles—to assist aggressive tax planning and evasion, to act as agents for the IRS and enforce the tax code, or simply be expensive outlets for tax return preparation. Do the distributional statistics lead to the conclusion that tax practitioners cause rather than divert additional tax evasion? The purpose of this paper is to address the causal connection between return preparation choice and evasion. We find that the return characteristics for those seeking practitioners are associated with an increased opportunity for tax evasion. But our analysis also shows that tax practitioners actually lower tax evasion beyond what it would be if an individual had sought another means of preparation, such as self-preparation.

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