The Demand for Tax Return Preparation Services

In this paper we focus on taxpayer choices of return preparation services. Using aggregate nested logit techniques, we find that the demand for third party preparation responds to many factors: age, education, employment status, federal auditing, and tax return characteristics. Perhaps most important among these is federal auditing. Higher federal audit rates increase the demand for tax practitioner services, but do not affect the demand for other modes of third party assistance. More generally, as the tax burden increases, or as uncertainty about true tax liability increases, the demand for all modes of third party assistance increases.