Seeking Professional Help: How Paid Preparers Decrease Tax Compliance

Legal services, such as tax preparation, claim to help clients better comply with the law while maximizing their benefits. We test this claim using data from about 135,000 random audits conducted by the US Internal Revenue Service between 2006 and 2014. Supplementing this nationally representative cross section of data on tax compliance with an instrumental-variable approach, we find that tax preparers actually reduce compliance, increasing taxpayers' underreporting of income by roughly $3,900 per tax return. However, we find that volunteer tax preparers assisting low-income taxpayers have compliance rates similar to self-prepared returns, suggesting that differences in clientele or pecuniary incentives can affect the relationship between tax-preparation services and tax compliance.