ABSTRACT: This study investigates the effects of the Internal Revenue Service requiring confidential Schedule UTP disclosures on corporate tax planning over the period from 2008 to 2013. We make th...
{"title":"Does Schedule UTP Have Uniform Long-Run Effects on Corporate Tax Planning?","authors":"K. Honaker, D. Sharma","doi":"10.2308/ATAX-51800","DOIUrl":"https://doi.org/10.2308/ATAX-51800","url":null,"abstract":"ABSTRACT: This study investigates the effects of the Internal Revenue Service requiring confidential Schedule UTP disclosures on corporate tax planning over the period from 2008 to 2013. We make th...","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":"39 1","pages":"63-79"},"PeriodicalIF":1.6,"publicationDate":"2017-10-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42917764","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
ABSTRACT: We examine the market valuation of the annual change in the additional paid-in capital (APIC) tax pool, a financial statement account that captures the permanent book-to-tax differences related to stock-based compensation awards. Evidence from prior compensation studies demonstrates that the tax deduction from the settlement of stock-based awards, rather than the recorded book expense, is the true economic cost of the awards. If this is true, then the APIC tax pool should be negatively related to firm value. Conversely, previous tax avoidance research suggests that this method of tax avoidance should be positively associated with firm value since it reduces cash tax payments. Using hand-collected data, we document a negative relation between the change in the APIC tax pool and cumulative abnormal returns surrounding the 10-K filing date. This result is consistent with the notion that investors use a tax-related financial statement account (i.e., the APIC tax pool) to incorporate the true economi...
{"title":"The Market Valuation of the Permanent Book-to-Tax Differences Generated by Stock-Based Compensation Awards","authors":"James D. Brushwood, Derek Johnston, L. Kutcher","doi":"10.2308/ATAX-51791","DOIUrl":"https://doi.org/10.2308/ATAX-51791","url":null,"abstract":"ABSTRACT: We examine the market valuation of the annual change in the additional paid-in capital (APIC) tax pool, a financial statement account that captures the permanent book-to-tax differences related to stock-based compensation awards. Evidence from prior compensation studies demonstrates that the tax deduction from the settlement of stock-based awards, rather than the recorded book expense, is the true economic cost of the awards. If this is true, then the APIC tax pool should be negatively related to firm value. Conversely, previous tax avoidance research suggests that this method of tax avoidance should be positively associated with firm value since it reduces cash tax payments. Using hand-collected data, we document a negative relation between the change in the APIC tax pool and cumulative abnormal returns surrounding the 10-K filing date. This result is consistent with the notion that investors use a tax-related financial statement account (i.e., the APIC tax pool) to incorporate the true economi...","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":"39 1","pages":"1-20"},"PeriodicalIF":1.6,"publicationDate":"2017-10-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42603577","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Annual Editor Report","authors":"C. Weaver","doi":"10.2308/ATAX-10599","DOIUrl":"https://doi.org/10.2308/ATAX-10599","url":null,"abstract":"","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":"1 1","pages":""},"PeriodicalIF":1.6,"publicationDate":"2017-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.2308/ATAX-10599","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48945854","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
ABSTRACT: We investigate the consequences of tax-related internal control material weaknesses (ICMWs) for financial reporting. We hypothesize that the presence of ineffective controls over the tax function makes earnings management through the income tax accrual (both income increasing and income decreasing) easier to implement relative to firms with effective controls. We also predict that the remediation of tax-related ICMWs has the effect of constraining earnings management through the tax accrual. The results provide support for our predictions. We also find that last chance earnings management via tax-related ICMWs is concentrated in the early years of our sample, during the initial SOX implementation period. Our results suggest that tax-related ICMWs were initially associated with greater tax-expense management but that SOX internal control assessments subsequently improved the quality of financial reporting by reducing opportunities for tax-expense management.
{"title":"Material Weaknesses in Tax-Related Internal Controls and Last Chance Earnings Management","authors":"Cristi A. Gleason, Morton Pincus, S. Rego","doi":"10.2308/ATAX-51511","DOIUrl":"https://doi.org/10.2308/ATAX-51511","url":null,"abstract":"ABSTRACT: We investigate the consequences of tax-related internal control material weaknesses (ICMWs) for financial reporting. We hypothesize that the presence of ineffective controls over the tax function makes earnings management through the income tax accrual (both income increasing and income decreasing) easier to implement relative to firms with effective controls. We also predict that the remediation of tax-related ICMWs has the effect of constraining earnings management through the tax accrual. The results provide support for our predictions. We also find that last chance earnings management via tax-related ICMWs is concentrated in the early years of our sample, during the initial SOX implementation period. Our results suggest that tax-related ICMWs were initially associated with greater tax-expense management but that SOX internal control assessments subsequently improved the quality of financial reporting by reducing opportunities for tax-expense management.","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":"39 1","pages":"25-44"},"PeriodicalIF":1.6,"publicationDate":"2017-03-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41705337","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Income Statement Reporting Discretion Allowed by FIN 48: Interest and Penalty Expense Classification","authors":"John L. Abernathy, Brooke D. Beyer, Andrew D. Gross, Eric T. Rapley","doi":"10.2308/ATAX-51542","DOIUrl":"https://doi.org/10.2308/ATAX-51542","url":null,"abstract":"ABSTRACT: Financial Accounting Standards Board Interpretation No. 48 (FIN 48, FASB 2006) allows discretion regarding the income statement classification of interest and penalty expenses for unrecog...","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":"29 1","pages":"45-66"},"PeriodicalIF":1.6,"publicationDate":"2017-03-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47550465","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
ABSTRACT: We expect firms with the greatest exposure to reputational damage among consumers will engage in lower levels of tax avoidance to minimize unwanted scrutiny that could impair the firms' reputation. We identify a set of firms with valuable consumer reputation using Harris Interactive's EquiTrend survey, which surveys consumers about their perceptions of valuable and prominent brands. We find evidence in support of our hypothesis that firms with valuable brands will engage in less tax avoidance. Specifically, we find a positive and significant association between our measure of reputation and both the GAAP and cash effective tax rates (measured over one and three years). We find mixed evidence on whether there is a negative and significant association between reputation and the probability the firm is engaging in tax sheltering.
{"title":"An Examination of Reputational Costs and Tax Avoidance: Evidence from Firms with Valuable Consumer Brands","authors":"Chelsea Rae Austin, R. Wilson","doi":"10.2308/ATAX-51634","DOIUrl":"https://doi.org/10.2308/ATAX-51634","url":null,"abstract":"ABSTRACT: We expect firms with the greatest exposure to reputational damage among consumers will engage in lower levels of tax avoidance to minimize unwanted scrutiny that could impair the firms' reputation. We identify a set of firms with valuable consumer reputation using Harris Interactive's EquiTrend survey, which surveys consumers about their perceptions of valuable and prominent brands. We find evidence in support of our hypothesis that firms with valuable brands will engage in less tax avoidance. Specifically, we find a positive and significant association between our measure of reputation and both the GAAP and cash effective tax rates (measured over one and three years). We find mixed evidence on whether there is a negative and significant association between reputation and the probability the firm is engaging in tax sheltering.","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":"39 1","pages":"67-93"},"PeriodicalIF":1.6,"publicationDate":"2017-03-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44006736","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
ABSTRACT Effective for fiscal years beginning after December 15, 2006, FIN 48 significantly altered uncertain tax benefit (UTB) recognition and disclosure requirements relative to its predecessor standard, FAS 5. We examine the effect of the new standard on audit pricing. We first document that UTB-related audit fees increased following the implementation of FIN 48. However, we also find that this increase is primarily driven by a spike in the audit pricing of UTBs in 2007. Indeed, we find that the audit pricing of UTBs in the 2008–2012 period is not significantly different from that of the 2002–2006 period. We interpret these results to indicate that although firms incurred significant FIN 48 implementation costs, the ongoing audit pricing of UTBs under FIN 48 is similar to that of FAS 5. Our findings suggest that any potential benefits of FIN 48 may outweigh associated costs related to a temporary increase in audit fees. JEL Classifications: H25; M40; M41; M42; M48.
{"title":"The Cost of Compliance: FIN 48 and Audit Fees","authors":"M. Erickson, N. Goldman, James Stekelberg","doi":"10.2308/ATAX-51323","DOIUrl":"https://doi.org/10.2308/ATAX-51323","url":null,"abstract":"ABSTRACT Effective for fiscal years beginning after December 15, 2006, FIN 48 significantly altered uncertain tax benefit (UTB) recognition and disclosure requirements relative to its predecessor standard, FAS 5. We examine the effect of the new standard on audit pricing. We first document that UTB-related audit fees increased following the implementation of FIN 48. However, we also find that this increase is primarily driven by a spike in the audit pricing of UTBs in 2007. Indeed, we find that the audit pricing of UTBs in the 2008–2012 period is not significantly different from that of the 2002–2006 period. We interpret these results to indicate that although firms incurred significant FIN 48 implementation costs, the ongoing audit pricing of UTBs under FIN 48 is similar to that of FAS 5. Our findings suggest that any potential benefits of FIN 48 may outweigh associated costs related to a temporary increase in audit fees. JEL Classifications: H25; M40; M41; M42; M48.","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":"38 1","pages":"67-85"},"PeriodicalIF":1.6,"publicationDate":"2016-10-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68957714","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Discussion of Taxes, Investors, and Managers: Exploring the Taxation of Foreign Investors in U.S. REITs","authors":"S. Laplante","doi":"10.2308/ATAX-51540","DOIUrl":"https://doi.org/10.2308/ATAX-51540","url":null,"abstract":"","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":"38 1","pages":"21-26"},"PeriodicalIF":1.6,"publicationDate":"2016-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68958152","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
M. Howard, Katherine A. Pancak, Douglas A. Shackelford
ABSTRACT Exploiting a 2004 reduction in a unique capital gains withholding tax for foreign investors in U.S. publicly traded REITs, this paper explores both the sensitivity of real estate investors to changes in their own taxes and the reaction of real estate managers to changes in their investors' taxes. We find that both foreign investors and REIT managers responded to the tax change. This is consistent with taxes both restricting the flow of foreign capital into U.S. REITs and affecting the management of their real estate properties. To our knowledge, this is the first paper documenting that U.S. managers change their U.S. operations in response to the tax positions of foreign investors. This work should spur further study of the interplay between real estate and income taxes, the role of taxes on foreign portfolio investment, and the role of taxes on real managerial decisions. It should also be informative to policymakers who recently relaxed the discriminatory tax treatment for foreign investors in U...
{"title":"Taxes, Investors, and Managers: Exploring the Taxation of Foreign Investors in U.S. REITs","authors":"M. Howard, Katherine A. Pancak, Douglas A. Shackelford","doi":"10.2308/ATAX-51506","DOIUrl":"https://doi.org/10.2308/ATAX-51506","url":null,"abstract":"ABSTRACT Exploiting a 2004 reduction in a unique capital gains withholding tax for foreign investors in U.S. publicly traded REITs, this paper explores both the sensitivity of real estate investors to changes in their own taxes and the reaction of real estate managers to changes in their investors' taxes. We find that both foreign investors and REIT managers responded to the tax change. This is consistent with taxes both restricting the flow of foreign capital into U.S. REITs and affecting the management of their real estate properties. To our knowledge, this is the first paper documenting that U.S. managers change their U.S. operations in response to the tax positions of foreign investors. This work should spur further study of the interplay between real estate and income taxes, the role of taxes on foreign portfolio investment, and the role of taxes on real managerial decisions. It should also be informative to policymakers who recently relaxed the discriminatory tax treatment for foreign investors in U...","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":"38 1","pages":"1-19"},"PeriodicalIF":1.6,"publicationDate":"2016-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68958064","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Sean McGuire, Stevanie S. Neuman, Adam Olson, Thomas C. Omer
ABSTRACT The Internal Revenue Code allows firms to carry excess tax losses forward to offset future taxable income and reduce taxes. Consistent with tax loss carryforwards (TLCFs) creating a significant asset, prior research finds that investors positively value TLCFs. However, investors face significant uncertainty about whether firms will have sufficient future taxable income to benefit from TLCFs. We hypothesize that investors' valuation of new TLCFs will vary with firms' prior tax avoidance behavior because it signals firms' abilities to generate taxable income to offset TLCFs through tax planning. We confirm that investors assign a positive value to new TLCFs and find that investors' valuation varies with firms' prior tax avoidance behavior. Investors positively value TLCFs when firms exhibit high variability in prior tax avoidance and high levels of prior tax avoidance. Our results are incremental to the effect of changes in the valuation allowance on investors' valuation of new TLCFs. JEL Classific...
{"title":"Do Investors Use Prior Tax Avoidance when Pricing Tax Loss Carryforwards","authors":"Sean McGuire, Stevanie S. Neuman, Adam Olson, Thomas C. Omer","doi":"10.2308/ATAX-51483","DOIUrl":"https://doi.org/10.2308/ATAX-51483","url":null,"abstract":"ABSTRACT The Internal Revenue Code allows firms to carry excess tax losses forward to offset future taxable income and reduce taxes. Consistent with tax loss carryforwards (TLCFs) creating a significant asset, prior research finds that investors positively value TLCFs. However, investors face significant uncertainty about whether firms will have sufficient future taxable income to benefit from TLCFs. We hypothesize that investors' valuation of new TLCFs will vary with firms' prior tax avoidance behavior because it signals firms' abilities to generate taxable income to offset TLCFs through tax planning. We confirm that investors assign a positive value to new TLCFs and find that investors' valuation varies with firms' prior tax avoidance behavior. Investors positively value TLCFs when firms exhibit high variability in prior tax avoidance and high levels of prior tax avoidance. Our results are incremental to the effect of changes in the valuation allowance on investors' valuation of new TLCFs. JEL Classific...","PeriodicalId":45477,"journal":{"name":"Journal of the American Taxation Association","volume":"28 1","pages":"27-49"},"PeriodicalIF":1.6,"publicationDate":"2016-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68958005","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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