THE EFFECT OF IRS ENFORCEMENT POLICIES ON TAXPAYER ATTITUDES AND COMPLIANCE: A PROCEDURAL JUSTICE APPROACH

It has been suggested that tax collection procedures that are perceived to be unfair may, in some instances, actually reduce the level of tax compliance. The purpose of this study was to determine if tax collection procedures that are perceived to be unfair cause taxpayers to be less supportive of compliance with the tax laws and to actually underreport taxable income.; This study draws upon procedural justice theory to predict how taxpayers will respond to what they perceive to be unfair treatment by tax authorities. First, it was hypothesized that taxpayers subject to inconsistent tax enforcement procedures would more strongly agree that noncompliance is acceptable and underreport more of their taxable income. Second, like inconsistent enforcement procedures, tax enforcement procedures based upon inaccurate information were predicted to affect taxpayers' attitudes and behavior negatively. Finally, it was hypothesized that unfair tax enforcement procedures experienced vicariously would adversely impact taxpayer's attitudes and behavior.; These hypotheses were tested using an experiment. Subjects, who were experienced taxpayers, participated in a personal financial decision-making simulation where the true purpose of the experiment was disguised. While participating in the simulation, subjects earned cash awards for civic organizations based upon their decisions during the experiment.; Of the three dimensions of procedural justice tested, only one produced the predicted effect on behavior. The research results showed that subjects penalized because the tax enforcement authority in the experiment used inaccurate information did not respond by underreporting more income. Moreover, subjects exposed to inconsistent tax enforcement procedures also did not underreport more income. However, subjects exposed to procedural injustice indirectly by learning of another's unfair experience did respond by underreporting more income. Finally, none of the manipulations of procedural justice in the experiment produced the predicted effects on taxpayer attitudes.