The Influence of Client Preferences on Tax Professionals' Search for Judicial Precedents, Subsequent Judgments, and Recommendations

Abstract

This study experimentally examines the influence of client preferences on tax professionals' information search, and how the resulting search behavior affects professionals' subsequent judgments and recommendations to clients. These are important questions because information search is a pervasive feature of accounting environments and professionals base recommendations on information gathered during the search process. In the experiment, 65 tax professionals searched a computer interactive database for judicial precedents to resolve an ambiguous tax issue. Client preferences and the probability of an IRS audit were manipulated between subjects. The results indicate that subjects spent more time attending to cases that reached conclusions favored by their client than they did attending to cases that did not, irrespective of the probability of an IRS audit. In turn, this search emphasis influenced subjects' beliefs as to how a neutral court would resolve the issue which, in turn, affected their recommendations to clients. This study provides initial evidence that, by affecting information search, client preferences indirectly influence professionals' judgments and recommendations.

JEL Classification: K34, C91