Tax Practitioners Serving Two Masters : A Game-Theoretic Analysis

This paper analyzes a tax agency strategy which imposes some level of responsibility on tax practitioners for eliciting more truthful reporting from taxpayers who seek their assistance. Under the proposed enforcement mechanism, the tax agency strategically chooses a new policy variable, the required level of practitioner investigation. A one-period game-theoretic model is used to study the effects of the policy on taxpayers' compliance strategies and on the tax agency's expected tax revenue. Although practitioners reduce taxpayers' incentives to evade by investigating the level of income communicated to them, taxpayers may still consult practitioners who can help them tax minimize by resolving their tax liability uncertainty.From the tax agency's perspective, the model implies that there exists an optimal shifting of the burden of enforcement to the private sector. Furthermore, even when it is costless to the tax agency to impose this level of responsibility on practitioners, eliminating evasion will not, in general, maximize tax revenue. The tax agency must trade off the levels of evasion and minimization