Audit the taxpayer, not the return: Tax auditing as an expression game

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AUDIT THE TAXPAYER, NOT THE RETURN: TAX AUDITING AS AN EXPRESSION GAME

BRIAN T. PENTLAND Michigan State University and PAUL CARLILE University of Michigan

cxamincsthe practice of tax iulditingin the ExaminationDivisionof the Internal Revenue Service (IRS). Using data from 142 interviewsof revemte agents in f&r dHerent geographicallocations, we analyzethe audit procew aa an example of an “expression game” [G~flhun,E., Strategic Interaction @hUadelphia,PA: Universityof PennsylvaniaPress, 1969)] in which the taxpayer attempts to maintaina front an an honeat, compliant citizen and the revenue ?genta attempt to maintain a front as a fair, competent professionalwho is just doing his or her job. Expressiongames are a generic kind of strategic Metaction in which participantaattempt to man?gc the impressionsthat others have of them and their credibility.While certain aapectaof an expressiongame could be reduced to a formaldynamicgame with asymmetric information, the sociological perspective on the audit interaction seeks to preserve the complexity of the moves and motivations that drive the interaction. Unlike formal game theoretic models, this perspective draws attention to the practical, working knowledge required in audit work, as well as the so&-emotional aspectnof the interaction. We use this framework to help understandthe and technology limitsof obiectivity, formnllzption, _. in work that involvesstrategicinteractionsof this kind. copyright (D19% Else&r science L.td.

This paper

In the relationship between

the United States Federal Government and the average citizen, the Internal Revenue Service (IRS) is where the rubber hits the road. The regularity and inevitability with which we all pay taxes makes the IRS one of the best known and most widely disliked institutions in American life (Watterson, 1988). At a macro level, we can interpret the practice of tax auditing as monitoring and enforcing one aspect of the social contract between the people and the government. As citizens, we are obliged to provide financial support for the activities of our government. Although the obligation to pay

taxes is statutory and not contractual, one can interpret the work of the IRS tax auditors in a standard agency theory framework: they monitor the behavior of taxpayers to insure compliance. In this framework, the government is in the role of principal, the taxpayer is in the role of agent, and the job of the IR!3 Examination Division is to monitor compliance with the tax code (Reinganum & Wilde, 1985). Even more so than other accounting professionals (SingletonGreen, 1992), the IRS espouses the ideal of objectivity in their auditing: catching cheaters is important, but the uniform application of the law is considered essential.’

’ Readerswho doubt the sincerity of this objective need only consider the scandal that would emerge if systematicbias were discovered. WChave no data concerning how well the IRSacmallymeets this objective, but there is no questionthat, like any public bureaucracy, they espouse it strongly. 269

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At a micro level, this monitoring process unfolds through an elaborate set of interactions between particular taxpayers and various employees and systems of the IRS. As a practical matter, it is difficult for the IRS to capture a complete and accurate assessment of what is owed. Corporate taxpayers have elaborate records which are simply too voluminous to analyze completely, and individual taxpayers may have no records at all. The goal of the revenue agent is to look beyond the superficial appearance as presented in the tax forms and the supporting documentation. Records can be forged and books can be cooked, so the revenue agent must adopt a skeptical stance that gives rise to the informal motto of the Examination Division: “Audit the taxpayer, not the return.” The purpose of this paper is to explore the game-like qualities of the audit interaction as described by revenue agents. In a tax audit, the taxpayer is generally attempting to maintain a “front” of honesty and compliance, while the auditor is attempting to test that front. At the same time, the auditor is attempting to maintain the appearance of a fair, competent, dispassionate professional who is simply doing his or her job. Even where honesty, compliance, fairness and competence are not explicitly at stake, a contest over facts necessarily occurs in the taxpayer-agent interaction. The outcome of an audit (a revised tax assessment) is the product of a variety of factual inputs, such as the valuation of an asset that was donated to charity, the categorization of certain deductions, and the amount of losses to be claimed. Auditors are not allowed to interpret the law, but they are required to interpret the facts; in a sense, this interpretative process is the primary skill of auditing (Journal of Accountancy, 1986). The ability to arrive at an interpretation that is good enough for all practical purposes is a critical part of the knowledge developed and used by revenue agents as they go about their work. Audits are a classic example of a non-coop erative game and have been analyzed using formal game-theoretic techniques (e.g. Felling-

and P. CARLILE

ham & Newman, 1985; Morton, 1993). As we shall demonstrate, however, the realities of the audit situation stretch the limits of applicability of formal game theoretic concepts. For this reason, we have chosen to approach the analysis of the audit situation using Goffman’s <1969) concept of an “expression game.” This framework allows us to analyze the audit process in terms of a set of generic moves that auditors and taxpayers use as they negotiate the facts of the case and the outcome of the audit. These moves are enabled and constrained by features of the situation (Pentland, 1992) and are used to enact the power relations between the IRS and the taxpayer. This forms the basis of the working knowledge that comprises the day-today performance of the job. As we shall see, revenue agents can have a thorough knowledge of the tax law (formal knowledge), but unless they can get cooperation from the taxpayer, they will never complete an audit. The distinction between formal knowledge and working knowledge (Kusterer, 1978; Orr, 1990) helps explain some of the ways in which the audit diverges from an idealized game. The paper begins by introducing the theoretical background needed to interpret auditing as a strategic interaction. We contrast the formal game-theoretic interpretation to the less formal, but more descriptively adequate framework from Goffman (1969). This framework provides a convenient way to express the working knowledge of auditors and to contrast that knowledge with the formal knowledge of accounting rules and tax law that dominates the traditional accounting literature (Sylph, 1988). Second, we introduce the setting for this research and describe the methods used in this study. Third, we present a detailed description and analysis of the field audit pro cess as experienced by revenue agents. The emphasis in this description is on the interactions with the taxpayer and the practical constraints that shape those interactions. Finally, we discuss the implications of this analysis for auditing and other strategic interactions where an interpretation of facts is required.

TAX AUDITING

THEORY:

STRATEGIC INTERACTIONS

To say that tax auditing is a game merely states the obvious: taxpayers are motivated to minimize their tax burden and the IRS is responsible for making sure they do so within the limits of the law. The question is, what kind of game is a tax audit and what insights can we gain about auditing (and similar kinds of interactions) from an analysis of its game-like prop erties? To answer this question, we will explore two alternative perspectives on strategic interactions that might be applied to the audit situation: formal games and expression games.

Formal games Audit situations can be interpreted as formal games (Graetz et al., 1986; Fellingham & Newman, 1985; Morton, 1993), where the auditor and the taxpayer attempt to construct optimal strategies based on their knowledge of each other’s options and payoffs. Formal game-theoretic analyses have provided a help fi_tlcorrective to traditional, decision-theoretic approaches to auditing which overlook the possibility that the entity being audited may be reacting strategically to the auditor (Eellingham & Newman, 1985). They also constitute an improvement over principle-agent models (as in Reinganum & Wilde, 1985), where the principle commits to a particular auditing policy in advance and the agent may respond strategically to that policy. By acknowledging that each participant in the audit game may behave strategically, the game-theoretic framework provides the greatest face validity of any of the economic models of auditing (Graetz et al., 1986). But as Fellingham and Newman (1985, p. 636) acknowledge, “the game-theoretic approach promises to be equally intransigent in The burden of application.” constructing an analytically tractable set of moves and payoffs limits the applicability of the formal framework to a highly simplified and decontextualized set of situations. The basic structure of the audit situation is espe-

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cially difficult to capture from a game-theoretic point of view, for the following reasons. First, there is imperfect and incomplete information because the auditor, in particular, is ignorant of what the taxpayer has actually done. This asymmetry of information is the fundamental motivation for auditing, of course. Some taxpayers design their actions to be deceptive or unobservable, through the use of cash or barter, for example. Other taxpayers simply make mistakes. The job of the auditor is similar in either case, but the details of how it is carried out depend on the auditor’s perceptions of the taxpayer’s willingness or ability to deceive. Auditing a well-intentioned but ignorant taxpayer is quite different from auditing someone who is actively attempting to commit tax fraud. In theoretical treatments of the subject (e.g. Graetz et aZ., 1986), it is assumed that an IRS audit eliminates the information asymmetry and results in the correct determination of taxable income. As we shall see, this is not necessarily the case. Second, the audit game is dynamic on at least two levels: within a given year and between years. Within a given year’s audit, the auditor and the taxpayer typically visit and revisit various issues; it is rare to completely settle a case on a single visit. Since the audit interaction may take place over a period of weeks, events from one encounter can influence actions at the next. Similar dependencies exist between years, as well, since the taxpayer may readjust his or her strategy in reaction to the outcome of the prior year’s audit. In current formulations (e.g. Graetz et al., 1986) the audit game is conceived of as a single round of play in which each party (the taxpayer and the IRS) gets just one move: the taxpayer reports, and the IRS either audits or does not. Third, because the IRS is a public agency and taxpayers often share information (through their accountants, for example), the strategy and outcome of a particular audit can have spillover effects to other audits. The IRS makes strategic use of this tendency when they target particular occupational communities (e.g. hairdressers, auto mechanics,

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restaurants) in specific geographic areas. By signaling owners of cash businesses that they may be subject to audit, the IRS attempts to encourage “voluntary compliance” among the entire community (Klepper & Nagin, 1989). The strategy can backfire, however, if it encourages more careful concealment of the underground economy. Because millions of taxpayers are playing this game every year, the practical payoff of a particular audit is difficult to predict. Finally, in spite of the fact that tax audits are primarily economic encounters, they have enormous costs and potential payoffs for each party that are difficult to measure in economic terms. Taypayers, even honest ones, generally experience audits as extremely stressful interactions and are often willing to concede issues to which they might be entitled just to get the process over with or to avoid the audit in the first place (Carroll, 1987). And as we shall see, auditors have incentives to complete audits that do not seem to correspond to the objective of revenue maximization. Some of these incentives are the natural result of working in a large bureaucracy that strives for efficiency, but others have to do with the auditors’ need to cope with an exceedingly stressful job. These factors further complicate the problem of specifying well-defined payoffs for the participants. Thus, while the formal game-theoretic approach yields important insights in simplified situations, it cannot easily be applied to real audits.

Expression games An equally general, but less formal model for strategic interaction was proposed by Goffman

(1969). In most face-to-face communications there is a transmission of expressed information between participants. But when these expressions are contested, game-like conditions prevail (Goffman, 1969, p. 10). Goffman argues that while these features are most vividly illustrated in situations like espionage, they are general properties of all human interaction (Goffman, 1967). In any kind of face-toface interaction, individuals engage in some

degree of impression management (Goffman, 1959). This is true whether the interaction occurs in public or a highly institutionalized setting (Goffman, 1961). Usually, participants collude to support the everyday expressions and behaviors that are used to create and maintain face; this collusion allows participants to sustain normal social interaction (Goffman, 1967). But these same expressions may also be scrutinized as to who or what is to be believed, and in these circumstances, the normal expression game may become overtly strategic (Goffman, 1969). It is important to note that in expression games, it is not just the “facts” that are at stake: the identities of the participants are being tested and negotiated, as well. The practice of tax auditing can be framed as a strategic game where agent and taxpayer engage in a series of “moves” (Goffman, 1969, pp. 11-28) where each individual plays off the “moves” of the other - like a fencing duel, but one that is communication or expression based (Mead, 1934, p. 42). Goffman describes five generic moves that can be used to analyze this interaction. This list is not meant to be exhaustive in a technical sense, but as a helpful frame of reference to understand the properties of these kinds of social interactions (Goffman, 1969, p. 11). While Goffman introduced these moves using examples from the world of espionage (spies and counter-spies), we will introduce them here using examples that foreshadow our analysis of the tax audit game. Note that while it is natural to cast the taxpayer in the role of the “spy” who is attempting to cover the truth and the revenue agent in the role of the truth-seeker, these moves can be made by either party to the interaction. Unwitting moves occur when the subject is unaware that he or she is being observed. Taypayers normally go about their business without being directly observed and may develop a false sense of privacy that encourages them to believe that “big brother” is not, in fact, watching. For this reason, taxpayers can be viewed as making unwitting moves throughout the year.

TAX AUDITING

But when a taxpayer fills out a set of tax forms, he or she offers the revenue agent observable data and is typically very conscious of how it may be interpreted (Carroll, 1987). There is no way to make an unwitting move on a tax form. Naive moves occur when the observer believes that he can take the subject as he or she appears. Revenue agents report that they rarely adopt a purely naive stance towards taxpayers because they believe that nearly everyone cuts comers on tax returns. In principle, nothing can be taken at face value. Of course, in practice, the revenue agent is forced by the constraints of the situation to take a great deal at face value and the ability to do so judiciously lies at the heart of their interpretive skills and their ability to “read people”. The taxpayer, on the other hand, may wonder if a revenue agent’s friendly question about where he spent his vacation is really just idle conversation or part of a systematic attempt to gather information. Control moves happen when the subject intentionally produces an expression or behavior that he thinks will improve his situation with the observer. The audit game is filled with moves that embody attempts on the part of the taxpayer (or in some cases, the Revenue Agent) to control the impression being conveyed. In the audit this might consist of stalling, having unorganized records, getting angry, or just not answering questions. One agent mentioned that a taxpayer refused to let her plug in her computer “because electricity costs money”. The time constraints that revenue agents work under can make these delaying tactics pay off for the taxpayer by forcing the agent to limit the investigation or in some cases, to say “to hell with it” and move on to another audit. Control moves are thus an important part of impression management. Uncovering moves take place when the observer tries to uncover the true motives of the subject. To a large extent, uncovering is what auditing is all about. Information that a taxpayer gives early on in the audit that was originally seen as sincere (i.e. an unwitting or naive move) may over the course of the audit

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be seen as something that needs to be uncovered. Uncovering moves can be covert (e.g. monitoring a taxpayer’s facial expressions while they talk) or overt (e.g. collection and analysis of bank statements). Agents often mention that they “have to be aware of body language in this job to tell if a taxpayer is being honest.” Body language can only go so far, of course; revenue agents must not only collect and analyze specific data, they must know what the numbers they uncover mean (i.e. that a small refrigerated delivery truck doesn’t cost $500,ooo). Counter-uncovering moves occur when the subject realizes that the control moves they are performing might be detected and that they need to meet this uncovering move with a counter move. Counter-uncovering moves consist of some of the control moves mentioned before. More specifically, guarding against detection consists of knowing the tax law as well or better than the revenue agent performing the audit. This is why accountants and tax lawyers (who act on behalf of taxpayers being audited) present an especially prominent challenge to the revenue agent. Sorting all of this out empirically is difficult for the participants, and practically impossible for an observer, for as Goffman points out, “the best evidence for the observer is also the best evidence for the subject to tamper with” (Goffman, 1969, p. 28). The point is that the game consists of both reactive and anticipatory moves and that in general, it starts before the tax return is filed, through the preparation of records, the structuring of deals and contracts, and the conduct of business in general.

Comparison of perspectives on strategic interaction While Goffman’s expression games are explicitly dynamic, with asymmetric information driving the action, there are some fundamental differences between the sociological and the economic approaches. The economic model is concerned, first and foremost, with “solving” the game to identify the optimal strategy for each participant. Since the publication of

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Becker’s (1968) normative economic analysis of optimal enforcement levels, in which tax auditing was explicitly mentioned as a possible application, this approach has dominated the literature on tax auditing (Allingham & Sandmo, 1972; Reinganum & Wilde, 1988). Most of this literature has assumed that the IRS and its audit policy are exogenously given and the behavior of the taxpayer is determined by rational choice. The inclusion of “strategic” audit selection criteria that vary based on the data provided by the taxpayer has been a recent innovation in the formal analysis of tax compliance (Graetz et al., 1986). But selection of a return for audit is conceived of as the last move the IRS makes in the audit game, because the results of the audit are assumed to be an accurate tax assessment. At best, audit results are treated by a kind of variable payoff function. Thus, where the formal game ends, the expression game begins. While they lack computational elegance, expression games provide a much richer vocabulary with which to describe the audit game. The generic moves in an expression game pro vide no guidance at all concerning optimal strategies, but they capture the texture and feel of the practice as experienced by the participants in terms that can be generalized across situations. As with formal game theory, there is an interest in the structure of the situation, but also in the ongoing practices, working knowledge, and emotional states of the participants. The expression game framework also calls attention to the ways in which revenue agents themselves may engage in impression management during an audit. The key difference is that while formal game theory treats the facts as exogenous to the audit - waiting to be discovered by the auditor - the expression game treats the facts as endogenous to the audit a product of the game itself. It is important to note that each framework tends to simplify the audit situation in some Neither framework explicitly respects. accounts for the organizational setting; while the expression game framework is less formal and therefore provides more context, it none-

theless focuses on the audit interaction itself. neither framework explicitly Likewise, accounts for the possible presence of multiple individuals on each side of the audit interaction. Taxpayers often have accountants or attorneys who represent them, and for larger cases, auditors may work in teams. For these reasons, each framework tends to portray a rather stylized version of a very complex situation.

RESEARCH SITES AND METHODS The IRS Examination Division The United States tax system depends on compliance”: taxpayers are “voluntary expected to tile returns and pay what they owe (Klepper & Nagin, 1989). Of course, it is never really quite that simple. In a multimethod field study of taxpayer behavior, Carroll (1987) reports that many taxpayers knowingly cheat on their returns but rationalize this behavior by saying that the net effect is that they basically “pay what they owe”. Because taxpayers may espouse a standard of fairness and obligation that departs significantly from the Internal Revenue Code, it is necessary to conduct audits, as this IRS manager explains: Overall, our biggest effort is voluntary compliance. To get compliance, we have to do audits. There has to be the possibility of an audit or else the whole system will go to hell. The Examination Division is the part of the IRS that is responsible for conducting these audits. The IRS is organized as a matrix of functional units (such as examination, collection, taxpayer service, criminal investigation, and so on), and geographical units. Thus, for any given geographical location, a cross-section of functional units is generally present. Geographically, the IRS is organized into seven regions, each of which contains several districts. There are a total of 64 districts, some of which cover entire states (e.g. Massachusetts), others of which cover only part of a

TAX AUDITING

major metropolitan area (e.g. Brooklyn). Within a district, there are generally several physical locations, called posts of duty (POD). Finally, at any particular post of duty, there may be one or more field audit groups, each of which has a group manager and a roster of lo- 12 revenue agents.’ Methods and data The data reported here come from two rounds of interviews conducted by the first author, approximately one year apart. The first round consisted of a series of 15 days of field visits between February and July, 1987. Altogether, over 80 persons were interviewed, either individually or in small groups, representing four different IRS district offices, two in the Northeast and two in the Midwest. Within each district, agents from at least two field audit groups were interviewed. Several examination division personnel in the national office were also interviewed. Interviews were unstructured, lasting between one and two hours each. Taping was generally not allowed, so the raw data consist of expanded interview notes. Quotes are taken directly from these notes, with names, places and other identifying references omitted to protect confidentiality. The second round of interviews consisted of 16 days of field visits conducted between June and October, 1988. The objective of these interviews was to follow up on the use of technology in each of the four sites visited in the first round. During the second round, an additional 62 interviews were conducted. Recent published reports of IRS auditing practices (Sanders, 1995; Lohse, 1995) suggest that auditing procedures in the Examination Division have not changed substantially since the time these interviews were conducted.

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This research was originally intended to study the use of portable computers by accounting professionals within the IRS (Pentland, 1989). Thus, while some interview time was devoted to the technology per se, a considerable amount of time was devoted to understanding the nature of field auditing in general. Towards this end, revenue agents were asked to describe typical audits, easy audits and difficult audits. These descriptions provide a rare window into the practice of tax auditing, which most people can only see from the uncomfortable position of the taxpayer being audited. Since these data were collected through interviews rather than observations, however, they must be treated as accounts presented for an outsider, subject to some degree of impression management on the part of the IRS interviewees. Although most respondents seemed quite candid in their views, and most of the data has a distinctly “backstage” flavor to it (Goffman, 1959) it would have been desirable to supplement the research with observations of actual audits. This was not possible, unfortunately, due to IRS regulations on taxpayer confidentiality. Consequently, the analysis that follows represents that audit game from the viewpoint of only one of its players: the revenue agent.

THE FIELD AUDIT The IRS conducts three basic kinds of audits which are distinguished by the venue in which they take place. Service center audits are conducted completely by correspondence and typically involve correction of errors on a return. Office audits are conducted in a local IRS office and are typically limited to a narrow set of issues identified by computer analysis or

a Some small posts of duty in rural areas may have only part of a field audit group (i.e. one or two agents). All of the interviews reported here were conducted at posts of duty with at least two revenue agent groups. ’ Only 14 of these individuals were also included ln the original round of interviews. Although the second round of visits targeted the same locations, revenue agents generally spend most of their time out of the office, and they arc often given temporary assignments in other functions, such as taxpayer assistance, tralnlng, or quality control. Given these limitations, we make no attempt to analyze these interviews as a longitudlnal panel.

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by human reviewers. Field audits are conducted in the taxpayer’s home or place of business and generally involve a wider range of issues that can be expanded or narrowed at the discretion of the revenue agent handling the case. In this paper, we will be concerned exclusively with the field audit process. Revenue agents Revenue agents conduct field audits of highdollar individuals and sole proprietorships (form 1040) partnerships (form 1065) and corporations (form 1120). The term “field audit” derives from the fact that the revenue agent visits the taxpayer’s home or business; Revenue agents are expected to spend as much as 80% of their time in the field, with the balance spent on office paperwork, legal research, and other activities. The actual work of conducting a field audit is extremely varied, because revenue agents cover the entire range of taxpayers present in the modern American economy, from investment banks to drug dealers. Every taxpayer has a unique set of books, circumstances, and tax issues. To deal with this potential variety, revenue agents are required to have a college level accounting degree (or equivalent experience) and many are certmed public accountants. There are approximately 18,000 revenue agents employed by the Examination Division. Revenue agents are graded according to the civil service pay grades, starting at GS7 (for an entry level agent) and moving up to GS-13 (for an agent with many years of experience). As revenue agents gain seniority, they are given more and more complex cases. Moving up to a higher grade is a function of experience and productivity (timely completion of audits). Newer agents, who audit mostly individual returns and sole proprietorships, tend to say that the most important part of the job is dealing with taxpayers: “The biggest aspect is the meet and deal skills. Without that, you go absolutely nowhere on this job.” Senior agents, whose work consists almost exclusively of larger corporations, tend to emphasize technical skills: “Accounting is the prime skill. Without

that, you can do a 1040 and the schedule C, but on a big exam, you’ve gotta be able to understand the books.” These seemingly contradlctory responses reflect the difference in the kinds of assignments that revenue agents are given as they progress in their careers. A critical part of becoming a revenue agent is adjusting to work in a stigmatized organization. This is a difficult transition for many revenue agents, as this manager explains. We’re not exactly the most popular organization in the world and it takes a while to get used to workiug here. This job isn’t for everyone. There are some people who just can’t take the stress of having to go out and confront people day ln and day out. And not everyone tteats us real nicely, either. This point is illustrated vividly by this story from a revenue agent in the mldwest. But I had this thing recently when my fiancee and I were looking at a condo. The owner and his wife were showing us the place and at some point my flantee said something like, “Watch what you say around Hemy, he works for IRS.” The woman looks at me and says, “I knew there was something I didn’t llke about you.” Now usually people say things like that ln a joking kind of way, and it’s funny. But she was really mean, llke she really meant it. I felt very uncomfortable.

Revenue agents have many stories of thls kind, although they seem to be most sallent among newer members of the organization. In an effort to protect himself against this stigma, one revenue agent reported that whenever someone asked where he worked, he would reply “for the government”, or “for the treasury department”, or “downtown”, but never “for the IRS.” Our point in mentioning this here is that it would be wrong to assume that revenue agents have, as a group, fully internalized the legal framework which they have been hired to apply and enforce. They are people, and they are also taxpayers, like anyone else. To lose sight of the emotional side of audit work (as reflected, in part, in the “meet and deal” skills mentioned above) would be to overlook an important aspect of the field audit process.

TAX AUDITING

Description

of tbe field audit process

Comparing our observations of IRS to other published accounts (Surface, 1967; Chommie, 1970; Diogenes, 1973) shows that the basic structure, role, and daily life of the Rxamination Division has remained largely unchanged for nearly thirty years. In the following sections, we describe the details of the field audit process and analyze it as an expression game. Selecting returns for audit. Returns are filed at one of ten IRS service centers, where they are classified and selected for audit. Returns are selected for a variety of reasons; the decision process can involve computer scoring, random sampling, or human judgment. Once selected, returns are sent to the geographical district where the taxpayer resides or does business. From there, returns are assigned to an appropriate audit group for examination. These returns are the “inventory” for the field audit group, and the manager’s main job is to “move the inventory.” In Rling a return, the taxpayer makes the first control moves in the expression game. Taxpayers present a limited, stylized set of information that purports to summarize their economic activities for the year in question. In selecting a return for audit, the IRS makes its first uncovering move. At this level, from the taxpayer’s point of view, the game consists of a single question: “Will I get audited if I include (or omit) this information on my return?” (Carroll, 1987). But filing and selecting returns is only the beginning of the audit game.

Assigning

returns

to individual

agents.

Agents in each group are assigned cases by their group manager based on their training level and experience. The rule is one agent per case; with the exception of very large cases and certain specialty areas, revenue agents work alone. On one hand, managers are supposed to assign cases that develop the skills of the examiners and agents need “developmental work” in order to qualify for promotions. On the other hand, the need to “move the inventory” also creates a pressure to assign cases to agents who are already famil-

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iar with the issues. However, the incredible diversity of work guarantees that most agents cannot specialize very much, if at all. According to one group manager, “Private accounting firms generally specialize, they get to know the details of certain lines of business. But the IRS doesn’t have that luxury.” Common wisdom has it that the public is powerless against the omnipotent hand of the IRS. While the IRS does have extraordinary powers to collect taxes which seem to go beyond our concept of “due process”, the reality of the audit situation is not quite as onesided as one might believe. A group manager in the Northeast region explains his perspective as follows. On any given case, there’s only one ‘agent assigned. Then if that case goes unagreed, there’s only one appeals officer. And lf it goes to tax court, one prosecutor. People have the idea that the government has all this power, but ln real@ the IRS is really outgunned with it comes to legal and technical talent. The taxpayer almost always has more resources lf they choose to apply them ln a particular case.

One may question this manager’s efforts to downplay IRS enforcement powers, because not every taxpayer has access to the kind of resources and legal representation that are required to “outgun” the IRS. At the same time, there are other more mundane ways in which every taxpayer holds some important cards. First of all, the taxpayer knows more of the details of his or her own finances. The taxpayer knows if another set of books has been kept, and if so, where it is. The revenue agent only knows what has been reported on the return, which can be viewed as a covering move intended to create the impression of compliance. Second, the taxpayer is likely to have more time and attention to devote to the case than the revenue agent does. Agents must allocate their time among several audits in their inventory. The taxpayer, on the other hand, has only one case that concerns them. Of course, if a taxpayer is relying on a paid representative, the cost of these representations may become significant.

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The initial interview. Once assigned a case, the agent has to schedule the initial meeting with the taxpayer and, in many cases, the accountant or attorney representing the taxpayer. The initial interview sets the tone for the rest of the audit process. The agent forms impressions about what to expect from the taxpayer, and may elicit important information: “This is a critical part of the audit. People will often tell you a lot of things up front, and then clam up later, if they think we’re onto something.” The taxpayer’s reaction is also important: “If you lose the respect of the taxpayer, you’re dead in the water. If you mess up the interaction, you may get nowhere.” This comment underscores the revenue agent’s dependence on the taxpayer and the need for what they call “meet and deal” skills. The initial interview provides an occasion for a rich set of moves. There will surely be an array of control moves and uncovering moves, as the taxpayer attempts to establish a trustworthy image and the auditor attempts to test it. There may also be unwitting moves, where the taxpayer fails to realize that offhanded comments about a vacation may be an important clue to an auditor. A critical aspect of the initial interview, from the auditor’s point of view, is that it provides the first occasion to look beyond the tax return. Auditors use this opportunity to begin forming judgments about the taxpayer. Determining the scope. As part of starting an audit, the agent must also decide what issues will be examined. Determining the scope of the audit is a crucial step and the agent has a fair amount of discretion here. Certain issues are mandatory, but other issues are chosen by the agent based on data gathered during the initial interview and throughout the audit pro cess. These decisions require the agent to voluntarily take on considerable stress and responsibility: To be perfectly honest, I could make it less stressful by just going for the tiny little adjustments I’d never have to work hard, the taxpayer would get away with all the really big stuff, and it’d all be real easygoing. But I

don’t work that way. I like to go after the bigger issues, the tougher ones, and so I think I put a lot of stress on myself.

Revenue agents are operating on a schedule and must be careful about the time applied to each case. Group managers are under pressure to “move the inventory”, and unless there is adequate justification, revenue agents are expected to minimize the “time on case”. Minimizing time requires taxpayer cooperation: “you want to close cases as quickly as possible, so you have to be able to get the taxpayer to cooperate.” Two kinds of cooperation are needed. Throughout the audit, the agents must get the taxpayer to provide the necessary information to do the audit. Then, as the audit nears completion, the agent must get the taxpayer to willingly comply with the “adjustments”. For this reason, dealing with the taxpayer is a critical practical constraint in the audit process. For revenue agents working under these practical constraints, justice is best served through a give and take process that some label as “horse trading”. Forcing adjustments on the taxpayer through the formal application of tax rules and IRS regulations often leads to belligerence, non-agreements and appeals. A revenue agent in the Midwest summed up her thoughts concerning this issue in this way: Some agents really want to collect the taxes owed. For myself, I basically don’t have any unagreed cases. I can give it [revenue] away just as easily as appeals can [a statement about the inability of the tax courts to reach agreements as well]. I’d rather do it myself because that way I know what’s really being given away.

It is intriguing to note that a revenue agent can be aware of additional taxes due and choose to ignore them in the interest of completing an audit. The practice is reminiscent of “plea bargaining” in criminal cases; in effect, the revenue agent is telling the taxpayer, “agree to this issue and we won’t go into that one.” One could view this practice as a rational response to an overload of cases, but there is

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more to it than that. The audit game involves objectives and payoffs for the auditor that are distinctly non-monetary. Like taxpayers, auditors find their work highly stressful. Agents must be careful to maintain the appropriate front for extended periods of time, as this agent explains: Spending the entire day with a taxpayer is very stressful because you can never let your guard down. You have to be real polite and be careful what you say the whole day, with no breaks.

Worse yet, revenue agents are often required to audit individuals who are already undergoing financial hardships and have cheated on their taxes to help tide them over (e.g. cases Involving divorce, medical disabilities, and personal bankruptcy are common in auditor’s discussion of their work). Not everyone can handle these kinds of audits, as this manager explains. We know you’re really part of the IRS team when you can go out on an audit where the person has taken all kinds of questionable deductions so they can afford to have their kids teeth fixed. The guy starts screaming or crying, because he’s got-ma owe maybe 10% of his income, and he needs that money. To do your job, you have to go out there and explain it to him, empathize with his problem, maybe let him cry on your shoulder, and still get that adjustment. If you can do that and still live witb yourself the next day, then you arereallypartoftheIRSteam.

These examples also suggest some moves that Goffman did not envision that are specific to the auditing game, such as “giving it away”. The problem of defining the scope of an audit has been treated in formal models (e.g. Fellingham & Newman, 1985). In terms of Goffman’s framework, it would entail the decision not to pursue certain uncovering moves. These auditor’s comments suggest, however, that limiting the scope of an audit and giving away revenue are not always undertaken as part of an optimal, revenue maximization strategy. gather, they may be undertaken as part of a personal self-preservation strategy on the part of the auditor.

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Gathering the data. As the audit progresses, the agent may make subsequent visits, request documents from the taxpayer, and so on. This is where the expression game can be seen in its most elaborate form. The process of gathering and analyzing data is interactive; the data needed depends on what has already been pro vided. At their discretion, the agent can broaden the scope of the audit to past years, or bring in related returns (of family members, business associates, or investors). In some cases, particularly those where fraud is suspected, an agent may also gather data from third party sources. This may mean tracking down documentation from customers and sup pliers, getting appraisals of merchandise or gifts, and so on, as in this description of a “hard audit” by a revenue agent: Another one that was wild involved the overvaluation of livestock. What happens is that party A sells it to party B, who sells it to party C. They collude to create invoices that show certain prices, while in fact they pay much less. This allows them to overvalue the items for tax purposes, thereby deducting more, and they have valid-looking documentation, and so forth. We had to bring ln a specialist who says, “No way is that worth that much .” and then trace it back to party A, and so on. It can take a lot of detective work.

Often, the revenue agent is dependent on what he or she can learn from the taxpayer (or accountant or attorney representing the taxpayer) - there being no other sufficient source of information. An agent in the Midwest provides a unique metaphor for this aspect of the interaction and explains what can happen if the interaction goes badly: Dealing with the taxpayer is llke walking a tightrope. You have to pick every word you use so carefully. Sometimes they do things to deliberately delay things that really get you angry. Once, I was doing an audit where I needed some information from the taxpayer and wanted to call him. The accountant said be didn’t have the phone number, so he’d have to get back to me. Later on, something else came up and the accountant picks up the phone and dials the taxpayer, just like that. Now obviously be was lying before, but I can’t say anything, even though what I really want to do is wring his neck. And once something like that happens, it

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B. T. PENTLAND and P. CARLILE changes the whole situation. I mean if you trust someone you can accept a lot of credible oral testimony even lf they don’t have all the right supporting documentation. But once they start pulling that kind of thing, you aren’t going to belleve anything they say.

Once a taxpayer loses credibility on one issue, the auditor is far less likely to accept their word for anything. In terms of our model, when one coveting move fails, it decreases the likelihood of subsequent moves succeeding Thus, it makes sense that many agents suggest that “we are in the business of reading people.” In this sense, revenue agents really are “auditing the taxpayer”, searching for clues as to whether the taxpayer’s statements can be treated as factual. One agent put it this way: ‘you’ve got to be inquisitive, and don’t take things at face value. Evaluate the person you are talking to - is he a high roller or whatever? They tell you what they do, but you can’t be sure if it’s the truth. You almost need detective skills.” The problem revenue agents face, of course, is how far to go in searching for the facts of the case. revenue agents have significant power to force taxpayers to disclose information, but they do not always want to apply it, as this agent explains: The maln question is, when do you want to engage in battle, and when do you want to cut your losses? I have dropped out of audits because it wasn’t worthwhile to do battle. You have some real signllicant power, if you use it when it’s appropriate. You can summons records, stat notice [“statutory” computation of taxes without the taxpayer’s cooperation], and so on, but you don’t want to do that ln every case.

for next month. She rescheduled, but it basically cost her a day when she had nothing else to work on. When she came back to the office to tell me about it, I sat her down and told her that she should never have let the guy get away with that without at least dressing him down but good. I made her memorize Section 10.2 of the regulations governing the practice of representatives before the IRS, according to which he has the duty to provide access to records promptly upon request. The next time someone tries to pull that stuff, she can quote those regs and give the guy an earful about how lf he keeps this up, we’ll report hlm to hls licensing board, how it costs the taxpayers time, how the government has a job to do, and so on. It won’t help for that day, but he’ll be less likely to do it to some other agent, and he’ll never do it to you again.

In this example, the manager identifies the interdependence between audits. By giving the attorney an “earful” and threatening punitive action, the revenue agent may not advance the progress of the present audit, but may help with future audits. In this way, the strategy and demeanor of the auditor in one situation can spill over and influence the outcome of other audits. Stalling tactics are common; they represent a kind of covering move that can help swing the audit in the taxpayer’s favor by making it more diicult for the revenue agent to get information that is necessary to complete the audit. Agents here get a lot of Back from reps. . It’s a stalling tactic; people try to keep us from doing our work because its to their advantage to hold us off. Some agents may eventually just give up. In any event, older cases are harder to close. The trail can be harder to follow in some cases. Also, if an agent has to go on detail, that puts it on hold or may force them to transfer the inventory, all of which makes it harder to really do a thorough job. So stalling can be useful.

A group manager tells the following story about how a new revenue agent was “jacked around” by an attorney who wanted to delay an audit for a client:

These kinds of tactics can be taken to extremes by some taxpayers, as the following example illustrates.

The biggest and most important part of the job is dealing with taxpayers and reps, and deciding where you draw the line. Even if the taxpayer is the customer, as they like to say these days, you can’t let them jack you around. I had an agent ln one of my tralnlng groups who went out to an attorney’s office for an audit and was told that he wasn’t ready yet, and could she reschedule

It’s an audit of a couple of attorneys who are representing themselves and are giving us the hardest time you can lmaglne, the most childish klnd of things. And since they are the taxpayer, Section 10.2 doesn’t apply. This is the klnd of thing they would do. [Picks up a piece of paper to demonstrate ] Our agent asks for a document, and the attorney says, “Here it is.” [Holds paper

TAX AUDITING on desk, not moving hands off of it.] Our agent asks, 94ay I please MC it? *’ and the attorney says, “OK, you can see it.” [Holds paper up near hia head, across the table about 6 feet away, 80 you couldn’t MC it without binocukuu.] Or maybe they’ll hold it out like this and when the agent reaches for it, they’ll pug it away. Au the while keeping a calm, slow, deliberate demeanour. So WC served them with a summons, which they fought in court. We’ve had two judges dismiss tbemsehres from the case because these people were so bad. . It’s just crazy, but people treat us that way sometimes.

Whether it is crazy or not, this example illustrates the extent to which some taxpayers may go to prevent or forestall disclosure of tax information to IRS. In the face of such opposition, it would be easy for revenue agents to become highly aggressive. It is important, however, that revenue agents not be ovenealous in their pursuit of tax dollars, as this manager explains. If we

go out there looking for a yield, we’re going to destroy morale and the IRS’s reputation. And we’d prob ably provoke people into cheating as much as possible, which is exactly the opposite of what we want to do. Part of my job as manager is to keep agents from being too aggressive, from taking on the yield mentality. Just the other day, we had an agent get thrown out of a [taxpayer] rep’s office for being too aggressive. He was demanding all kinds of things, generally overstep ping what is normally accepted. He’s a new guy and was letting it ail go to his head.

These stories provide classic examples of control moves and uncovering moves. They also reveal the exceedingly dynamic character of the game within a given audit. These features are consistent with the expectations one might derive from a formal audit. These features are consistent with the expectations one might derive from a formal model. But we also find a pecuIiar divergence from the formal model here, in the example of an auditor who was reprimanded for an aggressive audit strategy that went beyond what was “normally accepted”. As Goffman (1969) notes, there are cultural constraints on the moves in a particular situation. By overstep ping normal expectations, revenue agents can

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damage their ability to obtain the necessary cooperation from taxpayers. Research on t&e tax law. In more complex audits, the agent may need to do research on the applicable tax law. The tax code is the body of formal knowledge required for the job, and a large part of the training the IRS provides revenue agents focuses on tax law and legal research. Agents may request help from managers, but are encouraged to work alone. Legal research can be a significant task; a typical tax library in an IRS district office fills a rather large room. As with issue selection, agents have some discretion over the depth of the analysis. Performing legal research diverges from the basic face-to-face expression game by introducing “back-stage” activities (Goffman, 1959) that occur during the course of the game. This reinforces the observation that the audit game can be played in multiple settings and by multiple players. This is especially true in the case of larger audits, where teams of auditors are often involved. Nonetheless, legal research is like an uncovering move, because it can pro vide the revenue agent with justification for the taxpayer’s actions or reinterpreting records in a new light. Computing the adjustments. Once the appropriate data are assembled and the applicable tax law determined, the agent prepares the proposed adjustments to the return. This process may be tedious, especially for large, complex cases like insurance companies. Prior to 1988, when the IRS began to provide revenue agents with portable computers (Pentland, 1989) all of the analysis would be done on ledger pads with mechanical pencils, or on “pro-forma” worksheets, where the appropriate columns and factors were already laid out. The resulting computation is written into the “revenue agent Report” or RAIL In addition to simply computing the tax, agents must also document the process in their “workpapers”. Workpapers show how each analysis was conducted; for a smaller audit they may be thirty pages, but for a large one they may be several hundred pages.

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As the IRS began to automate the audit process, revenue agents began to express concern over the possibility that taxpayers (or the accountants who represent them) would react strategically. One agent likened the situation to the French defenses against German invasion prior to World War II: Iftheexamin ation system was too standardized, then it would be like the Maglnot line of software - the accountant will go over it, around it, under it, any way they can. Remember, accountants can get [the software] through the freedom of information act, so they can Bnd the best method of beating the system. It’s an adversarial relation.

These comments suggest the use of counteruncovering moves on the part of taxpayers. Knowing that the IRS looks for certain things allows taxpayers to manipulate their transactions and their records appropriately. “Selling” the adjustments. After computing the new tax, interest, and penalties, the agent must discuss the adjustments with the taxpayer (or representative). The objective of this meeting is to get the taxpayer to agree to the adjustments, since the appeals process is expensive and time consuming. As one manager pointed out, “It’s important to settle the case at the lowest level we can.” Taxpayers can contest the results of an audit (resulting in a considerable amount of additional work for the revenue agent). This leads agents to talk in terms of “selling the adjustments” to the taxpayer, rather than just making the adjustment. In the typical audit scenario, the revenue agent looks over the taxpayer’s records and recomputes the amount of tax due. If this is different than what the taxpayer computed, the difference is called an “adjustment”. Adjustments can go in either direction, and amazing though it seems, a small percentage of audits result in money being returned to the taxpayer (Pentland, 1989). Of course, in the more common case of an additional assessment, taxpayers (and their representatives) may be unhappy when presented with the bill and may even become belligerent, as this revenue agent describes:

There’s one accountant who was a screamer, one of the worst. You’d go in them, and he’d yell, bang on his desk, the whole works. I learned to just sit there and smile real nice like this @utting on a huge, gratuitous grin) the whole time. When he got tired of screaming, he’d say, “Hey, you’re always so nice, you sit there and smile.” And then he’s sign the adjustments. It worked like charm.

Patience and a pleasant demeanor are an important part of selling the adjustments. But getting a taxpayer to agree to a revised tax assessment also depends on establishing credibility as a fair, competent auditor, as this manager explained: You see, when you’re out there doing an audit and it comes time to close the case, what you are really doing it selling your skills and image as a credible, competent examiner. Would you sign an agreement form prepared by someone you didn’t trust to do it right? Probably not.

In addition to seeming competent, it is critical that the revenue agent be perceived as fair. This is important not only for getting agreement in the current audit, but because an audit that is perceived as punitive might cause a taxpayer to cheat in future years, undermining the objective of voluntary compliance: We want to be perceived as being fair. We want to turn bad taxpayers into good ones. On one case there were so many things wrong that they would never agree to the adjustments, and they’d hate us forever. So, I just stopped looking, wrapped things up, and suggested they keep better records in the future.

Once again, we see that auditors sometimes overlook issues in the interest of closing cases. To the extent that they do so, they are colluding with the taxpayer’s claim to be honest and compliant, thereby helping the taxpayer to save face in the interaction. This kind of behavior is a natural part of an expression game (Goffman, 1967). The other practical reason to strive for taxpayer agreement is that “unagreed cases” involve a lot of additional work for the revenue agent and additional expense for IRS. The RAR and workpapers are much longer, and there may be follow-up work needed to

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support the appeals process. In general, agents prefer closing the case with taxpayer agreement as early as possible, because it saves both the IRS and the agent’s time, prevents escalation to other IRS functions, and demonstrates the agents competence and skill in meeting and dealing with the taxpayer. For these practical reasons, agreements are better than non-agreements. It should be clear from these examples that successful completion of an audit requires a great deal of impression management on the part of the revenue agent. The revenue agent must maintain an image of fairness and competence or the taxpayer will be reluctant to agree to the results and the audit cannot be completed. Hence, the revenue agent is engaging in a simultaneous expression game with the taxpayer. Because the situation is usually framed so strongly as “scrutinizing the taxpayer” the reverse dynamics can be difficult to tease out, but they are there nonetheless. Wrapping up the casefile. The Iinal product of the revenue agent’s work is the case file, which consists of a summary sheet (called a 4318), the workpapers, the RAR, and any sup porting documents. This case tile is turned in to the group manager for review and processing. Once the case tile is complete, it may be reviewed for completeness and quality. Managers review a certain percentage of cases, and a specialized review staff also looks at a sample. If a case is sent back, it may involve recontacting the taxpayer, and it takes a lot of extm time. If the case passes review (and doesn’t involve an appeal or other subsequent litigation), then the revenue agent’s job is complete. Once again, we find an example of a move that is peculiar to the audit situation. By giving his or her consent to a revised tax assessment, the taxpayer clears the way for a whole new set of IRS representatives to take over the case: the Collection Division. While an analysis of the activities of the Collection Division is beyond the scope of this paper, suffice it to say that the rules of that game are very different. It is no longer an expression game, because the facts

are no longer in contention. Once an assessment is made and deemed valid, the IRS has very broad powers to collect what they are owed. The game is essentially over.

DISCUSSION This analysis suggests that both taxpayers and revenue agents are engaged in impression management that is vital for the completion of the audit. There are at least two games going on at once because each party to the audit is attempting to maintain a front (Goffman, 1959). The payoffs in these games are not merely economic, because, in addition to the facts of the case, the identity of the participants is at stake. Revenue agents need to live with themselves and keep their jobs, which means that they cannot allow their identity as fair, competent individuals to be undermined. Taxpayers, whether honest or not, have similar needs that extend beyond their pecuniary interest in the outcome of the tax computation. If we accept these objectives as a significant part of the game, it is difficult to imagine computing an optimal strategy for either party. The moves in an expression game are difficult to predict and the payoff from any given move is difficult to compute. To reduce the complexity of the analysis, one could ignore the objectives of the participants, but doing so would lead us to overlook the process through which audit results are actually arrived at. Contrary to the simplifying assumption needed to make formal games tractable, the selection of a return to be audited is where the real audit game begins. In addition to providing a rich vocabulary in which to describe the dynamics of the audit game, the expression game framework pro vides insight into some additional issues that we would like to turn to at this point. Rationalization of audit work through formal rules In order to preserve the appearance of objectivity and fairness, the IRS is rule dominated, rationalistic and aggressively self-monitoring.

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The prescribed role of tax collecting involves the objective appllcatlon of rules to the facts of the case. These rules and the methods for their appllcatlon comprise the formal knowledge or by-the-book procedures to collect taxes. The formalization of rules and procedures is a natural outgrowth of the IRS peculiar position in society and its status as an enormous bureauClXCy. The data presented here suggest that these formal rules and their application are only part of the knowledge required to complete an audit. The expression game framework helps draw attention to the practice-based or working knowledge that revenue agents draw upon in the material and social constraints of the audit situation. In this respect, it is similar to other perspectives that stress the importance of analyzing actual practices to explain how knowledge is structured and used (Bourdieu, 1977, 1990; Giddens, 1984; Lave, 1988; Brown & Duguid, 1991; Pentland, 1992). Expression games reflect the material, social and historical influences - social praxis - that generate and sustain action and competent behavior (Bourdieu & Wacquant, 1992, p. 15). As expression games, audits embody a contest over the facts; until this contest is resolved, application of formal rules is impossible. As we have seen, this contest over the facts takes place in a situation which may encourage revenue agents to overlook formal rules, which they rationalize by saying that they are trying to “encourage voluntary compliance” in subsequent years (i.e. turn bad taxpayers into good ones). The informal knowledge governing the decision of “where to draw the line” is generated and embodied in the practice of tax auditing, rather than being prescribed by rules contained in the formal or canonical procedures of the IRS. Likewise, the particular moves used by revenue agents and taxpayers are constrained and enabled by the audit situation. The practical constraints of time, resources, information asymmetries, and power all help to create a situation where the best outcome for

the revenue agent, as well as the IRS, 1s to let people walk away from some portion of their tax burden even after an audlt. While thls is surely not part of the Internal Revenue Code, it is seen by revenue agents as a way of getting the job done, and hopefully, encouraging voluntary compliance ln the future. If the IRS were not under pressure to perform efficiently, auditors might make different trade-offs in their pursuit of adjustments. In particular, they would be less concerned with delaying tactics, since there would presumably be no need to close cases quickly. Nonetheless, even under conditions of unlimited resources, they would be subject to information asymmetrles and the need to enlist taxpayer cooperation to accomplish their goal. This outcome corresponds, in qualitative terms, to Becker’s (1968) normative analysis of “optimal” enforcement levels, but there is no claim of optimality. It is simply what is done. The expression game framework offers an interesting alternative to the problem of objectivity in auditing, as well. In much of the literature on auditing, there is an opposition between objectivity and subjectivity (e.g. Sylph, 1988). Objectivity is achieved through the uniform application of formal accounting rules. Subjectivity is conceived of as individual error or bias in the application of those rules (Plumlee, 1985). But strictly speaking, the results of a tax audit are neither objective or subjective. Rather, as the product of an expres sion game, the revised tax assessment is merely good enough for all practical purposes. The interpretation and application of the tax code is highly contingent upon the character of the interaction between agent and taxpayer; the facts that are negotiated subject to the practical constraints that exist. The tax audit interaction generates a pragmatic sculpture that is unique to the properties and constraints of each audit. Practical constraints: working knowledge and formal knowledge Perhaps the most critical issue raised in this paper concerns our understanding of the role

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of knowledge, and what counts as knowledge, in this much feared occupational group. From one perspective, (that of the in Washington), revenue national office agents are engaged in the bureaucratic application of the tax code to a sample of tax returns, according to procedures spelled out in the IRS Manual. In Orr’s (1990) terms, revenue agents are responsible for applying a knowledge” to each body of “canonical return they audit. The National Office (and IRS management in general) places a great deal of emphasis on following the rules because of the necessity of malntaining the Impression of fairness and impartiality. As we have seen, however, the practice of tax auditing draws on the tax code as a resource, but is largely constituted out of a series of practical contingencies that would remain largely the same regardless of the speclfic formulation of the tax code. Even if all deductions were ellmlnated, there would still be the matter of determining income; waiters and taxl-drlvers could still skim their tips. The motto of the field audltor tells us where the action is: “audit the taxpayer, not the return.” If a revenue agent sticks to the numbers on the page, he or she will likely miss the really big issues, like the sailboat sitting ln the driveway. The real tax audit game involves knowing how to find issues, and that is not part of the canonical knowledge base as embodied in the tax code. Nor is it part of the standard gametreatment which theoretic of auditing, assumes that auditing produces accurate results (Graetz et al., 1986). Bather, the tax audit game is a product of the situation in which taxpayers and revenue agents Iind themselves. Taxpayers generally know where they have cut a few comers, and they almost certainly know when they have committed fraud. But the auditor does not; he or she can only suspect problems and then attempt to ferret them out. As a result, the outcome of an audit cannot be determined by simply applying the tax code to the “facts” because the facts are the

product of the expression game. And because auditors and taxpayers differ in their skill, resources, and perseverance at this game, the outcome of any particular expression game is uncertain. The taxpayer may or may not sustain the impression of credibility. The auditor may or may not sustain the impression of fairness and competence.

CONCLUSION Auditing is a classic example of an expression game. The auditor and the taxpayer are locked in a contest over the “truth” of the taxpayer’s return, the outcome of which has considerable consequences for both parties and the public at large. Thls is, indeed, where the rubber hits the road. Most analyses of this important problem, however, have hovered safely above the ground, thereby avoiding the complexity that lies ln the details. Formal economic analyses, in particular, assume away the very contest that makes up the game. The simplifications needed to “solve” games of this klnd by computing normatlvely optimal strategies would seem to obscure our understanding of how the game is played, what moves are possible, and what the practical outcomes might be. Tax auditing is not the only example of an expression game, of course, as Goffman’s (1967, 1969) analyses make clear. Consequently, many of the observations we have made here are applicable to any situation where facts are contested and information is asymmetric. Any situation that can be interpreted in principle-agent terms, for example, has this quality. In short, expression games are ubiquitous in organizational life and in organizational research. Owners, managers, auditors, customers, and researchers are all in the position of searching for “facts” that are, at best, the products of expression games. What our analysis suggests, we think, is that the “facts” are considerably more tenuous in these situations than we would like to believe. In

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these situations, the ideals of objectivity and formal rules must be set aside in favor of

and P. CARLILE

practicality and informal judgments. Nothing more is possible, and nothing less will do.

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