The Sarbanes-Oxley Act of 2002 establishes executive accountability for corporate conduct
by requiring the CEO and the CFO to certify that they have reviewed the financial statements
(quarterly and annual) and to the best of their knowledge they do not omit material facts or contain
misleading and inaccurate information. In adapting the theory of tax evasion (which typically
deals with individuals) to corporate tax evasion, recent research has considered the effect of
assigning executive accountability. Crocker and Slemrod (2005) show that if penalties of evasion
were to apply to the manager (the agent), the principal (shareholders) can alter its compensation
contract with the agent to offset the consequences of 1RS policy. Crocker and Slemrod (2005)
conclude that enforcement strategies directed at the tax director of a company will impact corporate
behavior. In the tax context, the U.S. Senate briefly debated the idea of requiring CEOs to sign
the corporate tax returns, making them personally responsible. Included as part of the Jobs and
Growth Tax Relief Reconciliation Act of 2003, the proposal was dropped before the bill was
enacted, mainly due to heavy lobbying.
In Washington, a business e-filing its Combined Excise Tax Returns has no method for
signing its return. While the paper form filed by mail does request a signature, unlike federal tax
forms, there is no wording on the form indicating that the signatory, by signing the return, is
attesting that the return has been examined and appears to be true, correct, and complete. That is,
the signature does not make the signatory responsible (accountable) for the information provided
on the return. Given this lack of accountability, one enforcement strategy investigated in this
experiment to require an affidavit certifying that the person signing the form is the responsible
party for reporting taxes and that this person reviewed the business's records to ensure that no use
taxes were due. Thus, the hypothesis for this manipulation is as follows: