The purpose of this study is to analyze the effects of agency variables (dysfunctional choice situations) and ethical levels on tax auditors' tax investigation decision-making. To this end, 100 tax officials working at tax offices in the Busan area were sampled to compare tax investigation decision-making in cases where dysfunctional choice situations exist versus cases where they do not, and the ethical levels of tax officials were measured using a psychological instrument (SROM) to compare the decision-making of groups with high versus low ethical levels. According to agency theory, a dysfunctional choice situation is one in which an agent has both the incentive to shirk and the opportunity to shirk simultaneously. In this study, the assumed shirking incentive for tax officials was a request from an influential person to collect only a portion of the evaded taxes, and the shirking opportunity was defined as a situation where the assigned official (agent) possesses private information—specifically, where only the assigned official knows the detailed amount of tax evasion while colleagues and team leaders do not—and where collecting only a portion of the evaded taxes from the subject firm would still reach the average tax payment level of similar businesses in the vicinity. The research results showed that tax officials were more likely to behave opportunistically when dysfunctional choice situations existed than when they did not. Furthermore, the results indicated that ethical levels influence tax officials' decision-making and that agents' dysfunctional behavior is constrained by tax officials' ethical awareness. The most significant contribution of this study is that it demonstrates the possibility of integrating agency theory and Cognitive Moral Development (CMD) theory by applying both frameworks together in analyzing tax officials' decision-making behavior.