Peggy Hite

Areas of Expertise

Taxpayer Compliance, Tax Education, Preparer-Client Relationship, Progressivity

Academic Degrees

• Ph.D., Accounting, University of Colorado, 1986
• M.S., Spanish, Indiana State University, 1978
• B.S., Spanish, Indiana University, 1971

Professional Experience

• Chair, KSB Honors Program, 1999-2004
• Financial Planning Board, Administrative Council, Trustee, Strategic Planning Committee, First United Methodist Church, 1995-present
• Visiting Professor, Tax Policy, University of Canterbury, 1996
• Assistant Professor, University of Kansas, 1986-1988
• Assistant Professor, Colorado State University, 1985-1986
• CPA, Tax Manager, Gaddy & CO, Arkansas, 1978-1981
• Billing Officer, US Air Force, 1973-1975
• Former secondary teacher of Spanish, English, and Drama, 1972-1973

Awards, Honors & Certificates

• Trustees'' Teaching Award (2006, 2007)
• Selected as the Erskine Visiting Fellow at the University of Canterbury in Christchurch, New Zealand (1996)
• Outstanding Teacher in the Indiana University School of Business, Alpha Kappa Psi (1996)
• Selected to FACET, an Indiana University forum for those achieving excellence in their teaching careers (1995)
• School of Business Competitive Research Grants (1991, 1993, 1994, 1995, 1996, 1998, 2001, 2007)
• Ernst & Young Faculty Fellow (1995 to 1997)
• The Indiana University President''s Award for outstanding teaching, with competition from all eight campuses (1994)
• Faculty Group Leader for the American Accounting Association Doctoral Consortium (1994 and 1995)
• Schulyer F. Otteson IU School of Business Undergraduate Teaching Excellence Award, (1993)
• Alpha Kappa Psi, 1993 Outstanding Teacher in the Indiana University School of Business
• Alpha Kappa Psi, 1993 Outstanding Teacher in the Department of Accounting
• Recipient of the Best Faculty Paper Award for the 1991 Midwest Region American Accounting Association
• Finalist, Schulyer F. Otteson Undergraduate Teaching Excellence Award (1991 and 1992)
• Ernst and Young Tax Research Grant Recipient (May 1991) -- Joint project with R. Parry (Funding - $15,000)
• KPMG Peat Marwick Tax Research Grant Recipient (June-July 1991) -- Joint project with R. Parry (Funding - $30,000)
• Selected attendee to the Arthur Young Stanford Summer Tax Conference (1989)
• Arthur Young Tax Research Grant Recipient (Summer 1989) -- Joint project with M. L. Roberts (Funding - $30,000)
• Peat Marwick Faculty Fellow (1987-92)
• Mortar Board, President (1971)

Selected Publications

• Hite, Peggy A. (2010), "Research Impacting Taxpayer and Tax Preparer Compliance," IRS Research Bulletin.
• Fatemi, Darius, John Hasseldine, and Peggy A. Hite,  (2008), "Resisting Framing Effects: The Importance of Prior Attitude on Estate Tax Preferences,” Journal of the American Taxation Association, Spring.

Abstract Understanding tax preferences toward the estate tax could help resolve the continuing debate on weather the tax should be repealed. Gathering pubic opinion, however, is not a simple task as differing frames can alter the solicited preferences. For example the framing literature has shown that equivalent but countervailing frames can produce dissimilar responses, That is, providing positive descriptors of an attribute tends to lead to a more favorable evaluative response than does using negative descriptors (Levin et al. 1998). In contrast, the resistance literature has found that when respondents possess a prior counter attitude that conflicts with the descriptors, exposure to the descriptors can strengthen the original counter attitude. The estate tax, a contentious issue that is typically viewed negatively by taxpayers, provides an issue in which predictions from framing and resistance literatures are in direct contrast. Our study demonstrates that prior counter attitude reverses the expected framing effects. In sum, when respondents do not initially approve of an estate tax, favorable frames lead to more negative responses than do unfavorable frames. 

• Hite, Peggy A. (2007), "Tax Rate Preferences, Understanding the Effects of Perceived and Actual Current Tax Assessments,” IRS Research Bulletin, Internal Revenue Service Statistics of Income Division: Publication 1500, pp. 23-50. 

Abstract Results from prior research on rate preferences are problematic in that tax rate preferences provided by taxpayers are typically based on the average rates. The present study reports several measures of progressivity to better understand what aspect of progressivity is driving the responses (e.g., the lowest marginal rate, the highest rate, the spread of rates, the slope..). In addition, this study examines the effect of knowing what actual status quo tax assessments are. The results indicate that while status quo tax assessments lead to lower tax preferences compared to subjects without status quo information, those tax assessments are still significantly higher than the given status quo information. The implication is that average Federal income tax liabilities under current law may be much lower than most taxpayers realize, as media coverage highlights marginal tax rates, not average tax rates. If true, then knowledge of actual assessments may improve taxpayer perceptions about the fairness of current tax rates. Our data suggest this is true. 

• Hite, Peggy A. and J. Hasseldine (2007), "Developing a Tax Compliance Strategy for Revenue Services," Tax Notes, Vol. 117, No. 4, October, pp. 379-388.
• Hasseldine, John, Peggy A. Hite, Simon James, and Marika Toumi (2007), "Persuasive Communications: Tax Compliance Enforcement Strategies for Sole Proprietors," Contemporary Accounting Research, Vol. 24, No. 1, Spring, pp. 171-194.

Abstract Knowing how to encourage honest tax reporting by small business proprietors is a nontrivial issue. Sole proprietors represent an important group of taxpayers to examine, because they have both a high cost of compliance and a high opportunity for noncompliance. At the same time, tax agencies need to balance the high costs of noncompliance along with the high costs of traditional enforcement strategies. Consequently, researchers have suggested using persuasive communications with either normative or sanction appeals. However, prior research on persuasive communications has had mixed results. We examine the effect of normative and sanction appeals in a controlled field experiment in the United Kingdom using actual data reported by over 7,300 sole proprietors. Each participant in a treatment group received one of five different letters ranging from a simple offer of assistance to a letter advising that the participant''s tax return had already been preselected for audit. Using a concise instrument targeted toward high opportunity behavior, sales, and net profit, we find that tax compliance appeals resulted in greater compliance, particularly among recipients who do not use a paid preparer. We also find that sanction appeals tend to be significantly more effective than normative appeals for self-preparers on turnover and on net profit. For paid preparer returns, the sanction appeals were also more effective than the normative appeals, but only on reported turnover. In contrast, the normative and sanction appeals were statistically equivalent for change in net profit on the paid preparer returns.

• Hasseldine, John and Peggy A. Hite (2003), "Tax Practitioner Credentials and the Incidence of IRS Audit Adjustments,” Accounting Horizons, March, Vol. 17, No. 3, pp. 1-14.

Abstract A random selection of Internal Revenue Service office audits from October 1997 to July 1998, the type of audit that concerns most taxpayers, is analyzed. Taxpayers engage paid preparers in order to avoid this type of audit and to avoid any resulting tax adjustments. Whether there are more audit adjustments and penalty assessments on tax returns with paid-preparer assistance than on tax returns without paid-preparer assistance is examined. By comparing the frequency of adjustments on IRS office audits, it is concluded 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. The study included 2,253 audit cases; 71% of the audited taxpayers prepared their own tax return, 19% hired a CPA, and 10% hired a non-CPA. Most adjustments come from deduction errors, and CPA-assisted returns have significantly lower likelihood of having a deduction adjustment.

• Hite, Peggy A. (2003), "The Effects of Attribute Framing and Political Party Affiliation on Taxpayer Preferences,” eJournal of Tax Research, September, Vol. 1, No. 1, pp. 2-18.

Abstract Understanding how tax reforms, tax agency initiatives, and taxpayer characteristics influence attitudes such as perceptions of tax fairness is an important issue for tax researchers, administrators, and policy makers. Public support for the tax system has serious implications for taxpayer compliance as well as for political support on tax-related proposals. This study examines whether attitudes toward the federal income tax system and the 2001 tax rebate vary by political party affiliation and by attribute frames. Using data from a randomized telephone survey we find that perceptions differ significantly by political party affiliation. In addition, our study extends prior research by showing that simply manipulating the perspective or frames of an attribute can significantly affect normative evaluations of tax law preferences. Specifically, we test attribute framing in a tax context and find that negative frames elicit significantly different preferences about the tax system compared to positive frames with essentially equivalent information.

• Hite, Peggy A. (2002), “Current Trends in Tax Education Research,” American Taxation Association Mid-Year Meeting, New Orleans, February.
• Hite, Peggy A. (1998), "An Examination of Factors Influencing the Financial Reporting Decisions of Small Business Owner-Managers," Behavioral Research in Accounting, Vol. 10, pp. 159-178.

Abstract This study reports the results of a survey questionnaire sent to small business owner-managers across the country. Experimental manipulations investigated how a tax reporting rule either to expense or capitalize an item influences financial reporting preferences. The results indicate that those owner-managers who prepare GAAP financial statements for their businesses may be more likely to capitalize ambiguous expenditures than those who do not prepare GAAP-based financial statements. Among those who use GAAP financial statements, owner-managers with controlling interests in the business are more likely to expense rather than capitalize ambiguous expenditures while minority owners are less likely to expense. In addition, the GAAP users who are minority owners are more likely than majority owners to make financial reporting decisions that are consistent with tax reporting rules. Although data on small businesses is difficult to obtain, this study provides some preliminary data on the financial reporting preferences of small business owner-managers. A financial reporting decision may be influenced by how an item is reported for tax purposes. Scholes and Wolfson (1992) enumerate a variety of frictions between financial and tax reporting, and Watts and Zimmerman (1986) provide several examples of how tax consequences affect accounting choices. Recent empirical evidence supports their assertions. For example, several researchers have found that large corporations managed reported financial earnings in response to alternative minimum tax (AMT) provisions (Gramlich 1991; Manzon 1992; Dhaliwal and Wang 1992). No research to date, however, has examined trade-offs between financial and tax reporting for small nonpublic businesses.Although GAAP is required for publicly traded firms, its use by nonpublic businesses is more limited. Rosenfield and Gill (1991) have reported that financial statements of small businesses are often not prepared according to GAAP, but according to other comprehensive bases of accounting.Small nonpublic businesses have the option of using Generally Accepted Accounting Principles (GAAP) or tax reporting rules (one of the other comprehensive bases of accounting) in the preparation of their financial statements. Small business owner-managers make frequent financial reporting decisions, and the selection of accounting methods can be geared toward tax reduction.Cloyd et al. (1996) surveyed large firms about their reporting decisions. They found that subjects made financial reporting decisions that were consistent with their tax reporting decisions when it reduced their probability of an audit by the Internal Revenue Service (IRS). Tax reporting influences on the financial reporting of closely held small businesses is an empirical issue which has not been addressed in the literature. Since small businesses tend to be oriented toward tax reporting, it is posited that tax reporting rules influence financial reporting decisions in small businesses.The motivation for this study is derived from the lack of information on the friction between financial and tax reporting for small businesses. Large businesses have investors, creditors, internal and external auditors monitoring their financial reporting decisions. In contrast, closely held firms have significantly fewer analysts following their reporting decisions. Just as large firms have nontax costs to consider when making reporting decisions, nontax costs may also influence the reporting decisions of small businesses. Several factors are examined in the present study-level of ownership, use of GAAP financial statements, and tax reporting rules.First, it is posited that those who use GAAP-based financial statements are less likely to expense items than are those who do not prepare GAAP-based financial statements. Second, as stock ownership increases, there is an increased tendency to expense items rather than capitalize. This results in lower net incomes, which is consistent with a desire to minimize taxable income. Third, when decision makers are not majority owners, tax reporting rules will influence their GAAP reporting decisions. These hypotheses are supported.The results of this study will be informative to those interested in the financial reporting decisions of small businesses. If the results of this study are generalizable to other small businesses who use GAAP, then reporting decisions by controlling owner-managers may tend to understate financial net income because of a bias toward expensing capital expenditures. In contrast, reporting decisions by minority owner-managers may under- or overstate financial net income because of a bias toward conforming with tax law whether it requires expensing or capitalizing an expenditure. This desire to be consistent in tax and financial reporting by minority owner-managers is analagous to the results of Cloyd et al. ( 1996) who found that the financial officers of large firms tended to make the same reporting decisions for tax and financial purposes when it reduced the probability of scrutiny by a third party (e.g., the IRS).The primary objective of this research is to examine the influence of tax regulations on the financial reporting decisions of small businesses. Specifically, this study examines, first, the conditions under which tax reporting rules for asset capitalization affect financial reporting decisions and, second, whether majority owner-managers'' reporting decisions vary from nonmajority owner-managers. If tax reporting decisions influence the recognition of assets on financial statements, then financial reporting may be inadvertently distorted.The second section of this paper provides the background literature for this research. The third section describes the methodology, and the results are presented in the fourth section. The final section contains a summary of the results and concludes the discussion.

• Christensen, A. and Peggy A. Hite (1997), "An Investigation of Factors Affecting Taxpayer Compliance Decisions on Ambiguous Issues," The Journal of the American Taxation Association, Vol. 19, April, pp. 1-18.

Abstract The purpose of this study is to determine if taxpayers'' risk perceptions and subsequent reporting decisions are influenced by the type of reporting decision (income or deduction), framing effects (win or lose), and level of certainty (a 33, 55, or 75 percent chance of withstanding an IRS challenge). Over 400 taxpayers completed and returned a mail survey that requested the respondents to decide how they would report either an ambiguous income or an ambiguous deduction item. The results indicate that when taxpayers'' risk propensities are considered, taxpayers'' risk perceptions differ for ambiguous income and deduction items and their reporting decisions are influenced by those differences. In addition, taxpayers'' decisions are influenced by level of certainty but not by framing effects. The respondents indicated a greater willingness to take aggressive positions for an ambiguous deduction than for ambiguous income. They also took significantly more aggressive positions when the level of certainty increased from 33 to 55 percent. There was no significant difference in decisions when the level of certainty increased from 55 to 75 percent.

• Hite, Peggy A. and Robert W. Parry, Jr. (1994), "A Study of the Effectiveness of Writing Exercises as Elaboration Techniques for Teaching Tax," The Journal of the American Tax Association, Spring, pp. 172-186. 
• Bradley, C., Peggy A. Hite, and M.L. Roberts (1994), "Understanding Progressivity: An Empirical Investigation of Preferences Using Abstract and Concrete Information," Public Opinion Quarterly, Vol. 58, Winter, pp. 165-190.
• Hite, Peggy A. and G. McGill (1992), "An Examination of Taxpayer Preferences for Aggressive Tax Advice," National Tax Journal, Vol. 45, December, pp. 389-403.

Abstract Previous theoretical work has found that taxpayers will report higher incomes when tax law is ambiguous and uncertain, yet theoretical work has also shown that there will be lower compliance on returns prepared by practitioners if preparer penalties are low. A study experimentally examined taxpayer preference for aggressive advice using questionnaire responses from a national sample of 262 US taxpayers. The study investigated whether taxpayers agreed with preparers'' advice in ambiguous situations that varied by type of preparer recommendation (aggressive or conservative reporting position), probability of audit (high or low), and whether or not there would be a severe penalty. The findings suggest that taxpayers, on average, do not have a preference for aggressive tax advice. Thus, the literature positing cautious taxpayer behavior is supported, and no evidence supporting a general taxpayer demand for aggressive tax reporting is found.

• Ayres, F., Peggy A. Hite, and B. Jackson (1989), "The Economic Benefits of Regulation: Evidence from Professional Tax Preparers," The Accounting Review, Vol. 44, April, pp. 300-312.

Abstract An area of concern to tax policymakers is the role of third-party tax preparers in income tax reporting. The degree of consistency in the judgments of tax preparers subject to differing degrees of governmental regulation is examined. Economic theory of regulation indicates that certified public accountants (CPA), who are subject to a higher degree of governmental regulation, would be expected to recommend and justify more protaxpayer positions in ambiguous areas of tax law than would unlicensed preparers. This hypothesis is tested by administering a set of 5 tax cases with a high degree of uncertainty regarding the correct tax status to groups of CPAs and non-CPA tax practitioners. CPAs are found to be consistently more protaxpayer in their judgments than non-CPAs. Current attempts to reduce the latitude of the practitioner signal a move by government officials to reduce the benefits of regulation to regulated tax practitioners.

• Hite, Peggy A. (1988), "The Effect of Peer Reporting Behavior on Taxpayer Compliance," Journal of American Taxation Association, Vol. 10, Spring, pp. 47-64.
• Hite, Peggy A. (1987), "An Application of Meta-Analysis and an Application for Bankruptcy Prediction Studies," Organizational Behavior and Human Decision Processes, Vol. 39, March, pp. 155-161.

Abstract Attention is focused on the findings of prior research studies on the accuracy of predictions in bankruptcy studies. While studies have reported conflicting ratings of prediction accuracy, they also have put forth varying explanations for the variations in predictive ability. The Hunter-Schmidt method of meta-analysis is used to examine bankruptcy prediction studies from behavioral research. The method is a systematic, replicable approach that is used to accumulate results statistically across studies. The analysis technique is used first to examine whether the reported results from the studies were significantly different. Next, the results are examined to test if the difference was due to sampling error. Finally, the studies are categorized in order to test for differences due to a moderator variable. It is found that the various results do vary significantly. A source for this variation, the setting of priors, is identified.