How Will the Court Decide? - Tax Experts’ Versus Laymen's Predictions

26 Pages Posted: 16 Oct 2015

See all articles by Kay Blaufus

Kay Blaufus

Leibniz Universität Hannover

Jonathan Bob

Leibniz Universität Hannover

Daniela Lorenz

Free University of Berlin (FUB) - Division of Economics

Matthias Trinks

WD Treuhand GmbH Steuerberatungsgesellschaft

Date Written: October 16, 2015

Abstract

We conduct a survey of German tax professionals (tax advisors and revenue agents) and laymen to examine whether tax experts more accurately forecast the outcomes of five real cases from the German Federal Fiscal Court. With an average of 2.39 correct predictions among experts and an average of 2.49 correct predictions among laymen, our results reveal no significant difference in forecasting accuracy between the two groups. Additionally, neither general nor task-specific tax expertise increases the experts’ forecasting accuracy. This unpredictability of tax court decisions indicates that accounting rules and taxpayer penalties that rely on accurate predictions of tax court decisions may need to be re-evaluated. Moreover, our results indicate the existence of two types of ‘advisor bias’. First, tax advisors exhibit a significantly higher level of overconfidence in comparison to other experts (i.e. revenue agents) and laymen. In particular, they believe that they correctly predict, on average, 1.52 more cases than they actually do. Second, we find some evidence indicating that tax advisors acting as client advocates form stronger appeal recommendations than revenue agents.

Keywords: tax risk, overconfidence, tax controversy, forecasting

JEL Classification: M40, K20, H20

Suggested Citation

Blaufus, Kay and Bob, Jonathan and Lorenz, Daniela and Trinks, Matthias, How Will the Court Decide? - Tax Experts’ Versus Laymen's Predictions (October 16, 2015). European Accounting Review Forthcoming, Available at SSRN: https://ssrn.com/abstract=2675079

Kay Blaufus (Contact Author)

Leibniz Universität Hannover ( email )

Institut für Betriebswirtschaftliche Steuerlehre
Koenigsworther Platz 1
Hannover, 30167
Germany

Jonathan Bob

Leibniz Universität Hannover ( email )

Institut fur Rechnungslegung und WP
Koenigsworther Platz 1
Hannover, 30167
Germany

Daniela Lorenz

Free University of Berlin (FUB) - Division of Economics ( email )

Boltzmannstr. 20
Berlin 14195, 14195
GERMANY

Matthias Trinks

WD Treuhand GmbH Steuerberatungsgesellschaft ( email )

Beeskower Straße 114
Eisenhüttenstadt, 15890
Germany

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