In Brief

The voluntary tax system in the United States rests largely upon the willingness of taxpayers to pay their fair share. The authors examine compliance with the law through the lens of one’s mood within the context of the current COVID-19 pandemic and prevailing communal mood. Their findings indicate that a bad mood may contribute to improved tax compliance, whereas a positive mood may contribute to tax cheating. Additionally, honesty and humility remain contributing factors in tax compliance.


Recent data [IRS, “Comprehensive Taxpayer Attitude Survey (CTAS) 2019,”] indicates that 95% of taxpayers believe it is their civic duty to pay their fair share of taxes and 91% believe cheaters should be held accountable. Furthermore, the vast majority of respondents (93%) list personal integrity as the main reason for filing honest tax returns. In 2019, however, the IRS reported an average voluntary compliance rate of only 83.6% for years 2011–2013 (“IRS releases new Tax Gap estimates; compliance rates remain substantially unchanged from prior study,” Overall, this suggests that some otherwise “honest” taxpayers must be performing some “dishonest” behaviors.

This article examines the taxpayer decision-making process by investigating how mood influences the aggressiveness of tax reporting. Specifically, this paper observes tax aggressiveness through a mood-based lens. The authors define aggressive tax reporting as claiming a tax deduction that the taxpayer knows is not permitted by the IRS. Remarkable as it may seem, one’s willingness to comply with the law may be influenced by mood. One can reasonably infer that the ongoing COVID-19 pandemic has had a major impact on the prevailing mood of the general populace.

In psychology, a mood is a psycho-physiological construct connecting mental and physical processes (Brett A.S. Martin, “The Influence of Gender on Mood Effects in Advertising,” Psychology & Marketing, 2003, vol. 20, no. 3, pp. 249–273). Among other things, being in a good or positive mood may make one feel happy, cheerful, or optimistic; being in a bad or negative mood may make one feel sad, bad-tempered, or pessimistic. For purposes of this article, a taxpayer’s mood is simply defined as: how they feel while preparing their income tax return.

Research in cognitive psychology suggests that mood influences the way people process information (e.g., George Loewenstein, “Emotions in Economic Theory and Economic Behavior,” American Economic Review, 2000, vol. 90, no. 2, pp. 426–432; Norbert Schwarz and Ian Skurnik, “Feeling and Thinking: Implications for Problem Solving,” The Nature of Problem Solving, J. Davidson and R.J. Sternberg, eds., 2003, pp. 263–292). For example, numerous studies have found that people try to exert as little cognitive effort as possible when making decisions (e.g., Norbert Schwarz, Feelings as Information: Informational and Motivational Functions of Affective States, 1990, The Guilford Press; Keith J. Holyoak, “Problem Solving,” Thinking: An Invitation to Cognitive Science 3, 1990, pp. 117–146; Loewenstein, 2000), and seek out ways to reduce or shift their bad mood to a state of greater contentment (Robert B. Cialdini, Donald J. Baumann, and Douglas T. Kenrick, “Insights from Sadness: A Three-step Model of the Development of Altruism as Hedonism,” Developmental Review, 1981, vol. 1, no. 3, pp. 207–223).

With respect to positive versus negative moods, prior literature suggests that when people are in a positive mood, they use a more simplistic decision-making process strategy (e.g., rule of thumb) that requires less cognitive effort. Prior literature on negative moods suggests that people use a more analytical or detailed approach (Norbert Schwarz, “Feelings as Information: Implications for Affective Influences on Information Processing,” Theories of Mood and Cognition: A User’s Guidebook, 2001, pp. 159–176; Daniel Kahneman, Thinking, Fast and Slow, 2011, Macmillan). The rationale is that using a more detailed approach will help improve their current mood by avoiding future negative consequences. Similarly, taxpayers may be motivated to manage/mitigate their negative mood by seeking the positive satisfaction associated with being honest and responsible.

Therefore, one might predict that when people are in a negative mood, they are more likely to apply a more analytical or detailed approach in order to avoid the potential negative consequences associated with an aggressive tax strategy. People in a positive mood, however, are more likely to skim over the details of the case and consequently claim an inappropriate deduction (i.e., taking a more aggressive tax position).


To examine this topic, the authors conducted an experiment where we manipulated the presence of two different conditions to see how that influenced tax aggressiveness (i.e., claiming a deduction that the taxpayer knows is not permitted by the IRS). The first condition was the mood of participants (i.e., positive or negative). This was manipulated by asking participants in the positive mood condition to describe something that makes them happy and to write three sentences about why it makes them happy. In the negative condition, we asked participants to identify a politician they hate and write down three things the politician did that angered them. The second manipulated condition was the amount of the potential tax liability (i.e., $500 vs. $5,000). Thus, in total, there were four different settings (positive mood and low tax amount, positive mood and high tax amount, negative mood and low tax amount, and negative mood and high tax amount). Participants were randomly assigned to each setting, and their responses/answers were then compiled and analyzed.

The authors developed (and tested) an online data collection instrument that was then distributed by e-mail to 160 intermediate accounting students. The instrument consisted of four sections: 1) consent form, 2) the positive/negative mood manipulation, 3) the tax case, and 4) 30 follow-up questions. All participants were required to sign a consent form before they could proceed to the second section: mood manipulation (creating a positive or negative mood condition).

One might predict that when people are in a negative mood, they are more likely to apply a more analytical or detailed approach in order to avoid the potential negative consequences associated with an aggressive tax strategy

The third section of the data collection instrument required the participants to read a tax case about a full-time college student (Jesse) who works part-time and is considering taking an aggressive tax position to help lower an unexpected tax bill. Participants were told that Jesse either owed $500 or $5,000. A series of examples was then given, illustrating how much Jesse could save on tax if he chose to write off 100%, 50%, or 10% of his vehicle miles.

Jesse’s (and the participants’) dilemma was: should he minimize his income tax by deducting a commuting expense that he knows is unlawful? In the process of taking a tax course and talking to his co-workers, Jesse learns that his co-workers previously improperly claimed a deduction for commuting expense, but never had any trouble with the IRS.

The final stage of data collection (after reading through the tax case) was a 30-question survey. All participants were first given a manipulation check question to verify they read the case. After that, participants were asked how likely would they be to deduct the full amount of commuting expenses on a seven-point scale (ranging from extremely unlikely to extremely likely) as well as which percentage (0–100%) of commuting expenses they would deduct if they were in Jesse’s position.

The rest of the survey included debriefing questions, demographic questions, attention check questions, and questions designed to determine how honest participants were in this study. Participants received extra credit in their immediate accounting class. The final number of participants was 92; the average age of participants (roughly half female/male) was 23 years old, with three years of work experience on average. The majority (60%) said they had no experience with taxes and did not file their own forms.


Consistent with the authors’ expectations, the research results indicate that mood influences tax aggressiveness. We tested our prediction with an analysis of variance (ANOVA) between the four settings. The independent variables in the analysis were mood (positive vs. negative) and amount of taxes owed (low vs. high). The dependent variables were participants’ responses to the following two questions: 1) If you were in Jesse’s position, how likely would you be inclined to deduct the full amount of commuting expenses? 2) If you were in Jesse’s position, what percentage of commuting expenses would you deduct?

Results for the first question showed that mood was statistically significant (F = 5.12, p = 0.03), but amount was statistically insignificant. Consistent with the authors’ prediction, this suggests people in a negative mood were significantly less likely to minimize their taxes owed by deducting illegitimate commuting expenses.

Results for the second question showed that mood was statistically significant (F = 5.47, p = 0.02), but amount of taxes owed was statistically insignificant. Once again, consistent with the authors’ prediction, this suggests that people in a negative mood were significantly less likely to minimize taxes owed by deducting illegitimate commuting expenses than people in a positive mood. The lack of results for the amount of taxes owed variable suggests that participants did not focus on the dollar amount of savings. Perhaps the participants focused on the technical merits of the question instead, or perhaps the difference between $500 and $5,000 was not significant to them.

To further explore the results above, the authors also looked to see if participants’ level of honesty/humility influenced their tax aggressiveness. To measure honesty/humility, the authors used Lee and Ashton’s (Kibeom Lee and Michael C. Ashton, “Psychometric Properties of the HEXACO Personality Inventory,” Multivariate Behavioral Research, 2004, vol. 39, no. 2, pp. 329-358) 15-question survey and found this score was a significant covariate in our analysis (F = 7.16, p = 0.01). To further analyze the effect of honesty/humility on tax aggressiveness, the authors ran a regression with the two dependent variables, mood, amount, amount × mood, and honesty/humility. Regression results indicate that honesty/humility had a significant negative coefficient with both dependent variables, suggesting that higher levels of honesty/humility are associated with lower levels of tax aggressiveness (βhonesty/humility = –1.36, t = –2.68, p = 0.01).

It is appropriate for tax preparers to be aware that mood may influence their clients’—as well as staff’s—cognitive processes.

Final Thoughts

Although negative moods may generally be characterized as bad or undesirable, not all negative moods are necessarily damaging. Consistent with our expectations, our investigation shows that participants were significantly less tax aggressive when in a negative mood compared with a positive mood. We also found that participants’ level of honesty was significantly related to their tax aggressiveness. Lastly, the dollar amount of potential taxes owed had no significant impact on participants’ decisions.

Will the coronavirus (COVID-19) pandemic lead to an outbreak of tax aggressiveness? Based on this research, the answer is “no.” Although human behavior is complex and difficult to predict with 100% accuracy, a negative mood—as one would associate with the current pandemic—is actually more likely to encourage tax compliance. Conversely, it is the positive mood that has the potential to lead to tax aggressiveness.

What are the implications for CPAs? First, it is appropriate for tax preparers to be aware that mood may influence their clients’—as well as staff’s—cognitive processes. With respect to tax compliance, there is evidence that too much of a good thing (i.e., a positive mood) may encourage tax aggressiveness. Excessive self-satisfaction could also encourage an unsatisfactory accounting/audit work product as well. Furthermore, since the results suggest that inherently honest people are less likely to engage in aggressive tax reporting regardless of mood, a person’s core values appear to be a mitigating factor. Perhaps in-house annual ethics training should be expanded to emphasize and reinforce core values, including honesty. Lee and Ashton’s honesty/humility scale (2004) could also be used as a metric to measure current staff’s need for training or be used with recruiting.

Finally, human behavior is complex and varies by context as well as by personality, training, and experience. Although no one can precisely predict or change how human beings behave or will ultimately react, one can maintain an open mind and awareness that moods not only influence, but change our decisions.

Edward J. Lynch, PhD, CPA, is an assistant professor at California State University, Fullerton, as well as the founder and CEO of Audit Workshop LLC.
Jon Durrant, PhD, CPA, is an assistant professor at California State University, Fullerton.