Do experts help firms optimise?

We study the role of paid preparers in the take-up of a tax refund for corporate losses, a provision of the U.S. tax code that made $357 billion available to eligible firms between 1998 and 2011. Drawing a sample of 1.2 million observations from the population of corporate tax returns, we present three findings. First, only 37 percent of eligible firms claim their refund. Second, a cost-benefit analysis of the tax loss choice cannot explain the low take-up rate. Third, firms with sophisticated preparers, such as licensed accountants, are more likely to claim the refund. Moving from the 10th to 90th percentile in a predicted preparer effect based on observables would increase take-up by 9.4 percentage points. To show that firm selection cannot explain the observed preparer effect, we validate this result with a research design based on preparer deaths and relocations. Our results reject the standard view that firms optimize perfectly with respect to taxes.