Insights from academic tax research to inform tax reform and practice.

• Author: Greenstein, Brian

The American Taxation Association (ATA) is a subsection of the American Accounting Association and the leading academic organization in the field of tax accounting. Through its External Relations Committee and various other initiatives, the ATA has a long-standing history of cooperation with the AICPA on all matters involving tax practice. Many ATA members are active in the AICPA as authors and volunteers, and most are regular readers of The Tax Adviser and other professional publications.

As academic journals and articles are somewhat less accessible to tax practitioners, the External Relations Committee of the ATA publishes an annual column in The Tax Adviser summarizing some of the past year's highlights in academic tax research as reflected in leading academic accounting and taxation journals (see, e.g., Hulse, Inger, Nellen, and Oler, "Campus to Clients: Practice and Policy Insights From Academic Research," 53-11 The Tax Adviser 52 (November 2022); and Meade, "Campus to Clients: Academic Research for Your Practice Consideration," 52 The Tax Adviser 526 (August 2021)).

This year, five papers were selected to share with readers of The Tax Adviser. These articles range from how corporations minimize their effective tax rates (ETRs) through international planning and the use of tax holidays to how companies identify and manage tax risk, as well as the effects of big data analytics on tax compliance. Academic tax research analyzes data using sometimes complex statistical techniques, yet it seeks to answer fundamental questions relevant to tax practitioners and policymakers.

'Big Data Analytics in IRS Audit Procedures and Its Effects on Tax Compliance: A Moderated Mediation Analysis'

The amount of funding to be allocated to the IRS has long been a point of contention in Washington, D.C. Partially due to budget decreases over time, the IRS has continued to adopt new audit procedures to adapt to less money and manpower. One such change has been the incorporation of big data analytics (artificial intelligence and machine learning) to supplement traditional data collected for selection of IRS audits. However, while generally viewed as a solution to help the IRS collect revenue more efficiently and increase taxpayer compliance, a lack of transparency and privacy issues have been cited as concerns.

In their article published in the Fall 2022 issue of The Journal of the American Taxation Association (Vol. 44, No. 2, p. 97), Erica Neuman and Robert Sheu examined the effects of increased monitoring using IRS big data analytics on taxpayer compliance. Prior studies have found that procedural tax fairness, or the belief that taxing authorities engage in sympathetic and respectful procedures, indirectly affects tax compliance through its effect on tax morale. Therefore, any decrease in procedural tax fairness using big data analytics could reduce compliance and tax collections, even with an increase in perceived IRS monitoring.

Examining a scenario in which taxpayers earn contract income through two levels of participatory self-monitoring, the authors hypothesized that individuals who engage in more participatory self-monitoring through earning contract income via social media advertising will assess big data analytics as less of a violation of procedural tax fairness and will engage in increased tax compliance over taxpayers obtaining income offline through word of mouth (nonparticipatory self-reporting). In other words, any benefits from increased tax compliance due to improved IRS monitoring through big data analytics will be negated in the...