Tax practitioner judgements and client advocacy: the blurred boundary between capital gains vs. ordinary income

Tax planning often involves ambiguous law, necessitating the exercise of professional judgement. In this article, we review prior scholarly literature on client advocacy of tax practitioners. Tax planning in the US and elsewhere often involves a distinction in whether income is subject to taxable treatment as capital gains, or as ordinary income, under the tax code. As a case example we focus on one particular tax case that has been repeatedly used by US tax accounting researchers (originally based on Cloyd & Spilker, 1999) to show how professionals' judgements and decisions can be affected by the underlying incentives of the client case. We discuss the implications of our findings in relation to the contribution that can be made by behavioural tax researchers to tax policy debates and also link in our findings to wider policy objectives involving regulation of tax preparers and the complexity of tax laws.