Academic journal article Academy of Accounting and Financial Studies Journal

Code Comprehension and Aggressiveness among Corporate Tax Executives: The Impact of Certification and Licensure

Academic journal article Academy of Accounting and Financial Studies Journal

Code Comprehension and Aggressiveness among Corporate Tax Executives: The Impact of Certification and Licensure

Article excerpt

INTRODUCTION

The ability of corporate tax executives to perform their job functions and to make appropriate filing decisions is dependent on their understanding of relevant tax guidance and their intent to comply with the tax code. Corporate tax compliance has been the subject of recent accounting and taxation research studies, and researchers have identified several factors that may impact compliance (Shevlin, 2007; Weisbach & Plesko, 2007). Researchers have also noted that individual characteristics have the ability to impact performance (Keller, 2007). It is important for regulators, researchers, and tax executives to understand the perceptions of corporate tax executives regarding tax codes and regulations as well as the individual characteristics of corporate tax executives that may impact performance.

The study's purposes are to explore the perceptions of corporate tax executives regarding the Internal Revenue Code, to examine individual characteristics that may impact understanding of the Internal Revenue Code among corporate tax executives, and to determine if certain characteristics may also result in the filing of corporate tax returns that are considered aggressive. Based on the findings of recent research, this study examines the impact of a specific individual characteristic--corporate tax executive certification and licensure (credentials)--on code comprehension and aggressiveness (Epps, Cleaveland & Bradley, 2009). Data for the study is obtained from a detailed questionnaire that elicits information from corporate tax executives. The questionnaire gathers information on the perceptions of corporate tax executives regarding the Internal Revenue Code and its sentence structure, vocabulary, cross references, frequency of changes, timetables for compliance, the tax law treatment for specific items and aggressiveness of filed corporate returns.

We find that corporate tax executives perceive the Internal Revenue Code to be difficult to understand due to its sentence structure, cross references, and specified tax treatment for certain transactions. Tax executives also perceive that the timetables for compliance with new regulations is unreasonable. We then separate the tax executives with certification and/or licensure (credentials) from those without such credentials. Tax executive credentials were found to significantly impact both code comprehension and reported aggressiveness in the filing of the corporate return. We also test for competing factors that may drive code comprehension, and we find that both credential groups are similar in their knowledge of the tax function, influence over tax decisions, and educational achievement.

The remainder of the paper is organized as follows. The next section reviews the literature related to code comprehension and aggressive filing decisions. This section also presents the hypotheses. The third section describes the study methodology and summarizes the demographic characteristics of the study respondents. The fourth section discusses the results of the study, and the final section provides a summary and conclusion.

LITERATURE REVIEW AND HYPOTHESES

The revenue generated through the tax system is used to finance social and economic government programs. Without tax compliance, the tax system simply does not work, and the government does not generate the expected tax revenues (Ayers, Jackson & Hite, 1989; Hanlon, Mills & Slemrod, 2005). Tax noncompliance can be intentional or unintentional. Company size, industry regulation, firm profitability, risk seeking behavior, and executive compensation are some of the determinants of intentional tax noncompliance. Complexity of tax authority, the compliance burden of filing various forms, carelessness, and education are factors which have been shown to influence unintentional tax noncompliance (Rego & Wilson 2008, Rice 1992).

Research has also shown that aggressiveness in tax reporting can vary according to the clarity of the tax guidance, the aggressiveness of the client, and the tax preparer's experience. …

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