No abstract

This paper extends prior research in evaluating the decision of whether to invest in a mutualfund either outright or through one of the three available IRAs: the deductible IRA, the Roth IRA, and the nondeductible IRA. We provide mathematical models for after-tax accumulations for each of the investments that are a function of return, the percentage of the return currently taxable to the investor, the time horizon of the invest- ment, the capital gain tax rate, and the ordinary income tax rate. The Roth IRA and the deductible IRA always dominate investments in the nondeductible IRA or through out- right investment. However, in comparing the nondeductible IRA and outright investments, the outcome is dependent on the investment goals of the mutualfind and whether it generates substantial dividend distributions or capital gain distributions. Mutualfunds with small dividend and capital gain distributions may accumulate larger amounts if held outright while mutualfunds that pay substantial dividends or make sub- stantial capital gain distributions accumulate larger after-tax amounts when invested in a nondeductible IRA.

Decisions in the real world usually involve imprecise information or uncertainty about the precesses by which outcomes may be determined. This research reports the results of a laboratory experiment which examined whether the structure of uncertainty, namely, both the center and the range of the probability distribution describing the uncertainty, is an important determinant of choice. Specifically, it examines how the uncertainty of audit by the Internal Revenue Service of income tax returns affects taxpayers' decisions about intentional noncompliance. The context is relevant as almost nothing is known about how taxpayers assess detection risks using the probability information they have.The study focuses on intentional noncompliance. The factors affecting it are distinct and separate from those affecting unintentional noncompliance. Other factors that affect intentional tax noncompliance, such as risk, tax rates, and penalty rates, were controlled in the experiment. It was hypothesized that the lower the mean and the lesser the range (ambiguity) of the perceived audit probability, the greater the international noncompliance. As hypothesized, the analysis indicates that both the mean and the range of the perceived audit probability rate affect intentional noncompliance, though the effect of ambiguity is greater at a relatively higher level of mean. This result suggests that the strength of the information describing an uncertain event is captured better by both the mean and the range of the uncertainty than either of those components singly.