Are Private Firms More Aggressive Tax Planners?

Abstract

Drawing on confidential Internal Revenue Service (IRS) data, we examine whether privately held corporations are more aggressive tax planners than their publicly held peers. Contrary to conventional wisdom, we find no consistent evidence that private firms are more aggressive tax planners. We then examine whether private firms’ tax planning differs from that of public firms more generally. We find that private firms engage in more conforming tax planning (planning that also reduces pretax accounting income). However, tests of nonconforming tax planning reveal that private firms generally engage in the same or less planning relative to their public peers. Overall, our findings cast doubt on the belief that private firms are generally more aggressive tax planners than are public firms, but confirm that they engage in more of some forms of general (i.e., conforming) planning. Data Availability: The IRS provided confidential tax information to Michele S. Mullaney pursuant to an Intragovernmental Personnel Act of 1970 (IPA) agreement through the Statistics of Income (SOI) Joint Statistical Research Program (JSRP). JEL Classifications: H25; H26; K34; M41.