This study analyzes a random selection of Internal Revenue Service (IRS) office audits from October 1997 to July 1998, the type of audit that concerns most taxpayers. Taxpayers engage paid preparers in order to avoid this type of audit and to avoid any resulting tax adjustments. The study examines whether there are more audit adjustments and penalty assessments on tax returns with paid‐preparer assistance than on tax returns without paid‐preparer assistance. By comparing the frequency of adjustments on IRS office audits, the study finds that there are significantly fewer tax adjustments on paid‐preparer returns than on self‐prepared returns. Moreover, CPA‐prepared returns resulted in fewer audit adjustments than non CPA‐prepared returns.
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American Accounting Association