Knowledge, Adaptivity, and Performance in Tax Research

Abstract

In the current environment of increasing exposure to liability in tax practice, it is particularly important to understand the judgment and decision processes of tax practitioners and the relation of those processes to features of the tax setting. One way that tax practitioners reduce their exposure to practice risk is by conducting appropriate tax research to support their judgments. Because tax tasks and decision contexts vary, the appropriate tax-research process may vary as well. In this study, I investigate the interactive effects of contextual features and knowledge of those features on the information-search processes and tax-research performance of tax practitioners.

Tax planning and compliance decision contexts differ in the extent to which they are characterized by complexity, ambiguity, and justifiability demands. I predict that tax practitioners who demonstrate knowledge of these differences will conduct broader and more extensive information search in planning than in compliance. I also predict that the ability to adapt information search to the decision context is an important component of expert performance in the tax-research task.

I tested my hypotheses in an experiment in which decision-making context was manipulated within-participant and participant knowledge and decision quality were measured. Five measures of information-search breadth were employed as dependent variables. As predicted, participants who knew that the contexts differed in complexity, ambiguity, and justifiability conducted broader and more extensive information search in planning than in compliance while participants without such knowledge did not, and higher-quality tax researchers conducted broader and more extensive search in planning than in compliance while the lower-quality decision makers did not.

JEL Classification: C91, M49, K34