The Influence of Client Preferences on Tax Professionals' Search for Judicial Precedents, Subsequent Judgments and Recommendations
Posted: 19 May 1999
Tax professionals provide valuable services to clients by reducing uncertainty with respect to resolving tax issues. To reduce uncertainty, tax professionals research applicable authorities (e.g., judicial precedents) and provide assessments to clients of the level of evidential support for client-favorable positions. Tax professional standards, Federal income tax regulations, and analytical models of professional tax services assume that tax professionals are able to make this assessment objectively and accurately. However, psychological research on confirmation bias suggests that tax professionals' client advocacy role may inhibit their ability to search objectively for relevant tax authority which, in turn, might inhibit their ability to assess objectively the level of evidential support for client-favorable positions. We report the results of two studies that examine causes and effects of confirmation bias in tax information search. Results of the first study indicate that subjects' information searches emphasized cases with conclusions consistent with the client's desired outcome (i.e., positive cases) over cases inconsistent with the client's desired outcome (i.e., negative cases), despite the fact that positive cases were no more similar to the client's facts. Additional analyses indicate that the extent to which subjects emphasized positive cases during their information search was positively related to their assessments of the likelihood that a neutral court would resolve the issue in the client's favor and this in turn increased the strength with which they recommended the client's preferred tax position. Results of the second study indicate that confirmation bias induced by client preferences can be strong enough to not only result in inaccurate assessments of evidential support for the client-favored position, which is problematic in and of itself, but also to lead tax professionals to make overly aggressive recommendations.
JEL Classification: K34, C91
Suggested Citation: Suggested Citation