Does Schedule UTP Have Uniform Long-Run Effects on Corporate Tax Planning?

Kim Honaker · Divesh S. Sharma

19 citations0/0 files storedJournal of the American Taxation Association

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Corporate Taxation and Avoidance Taxation and Legal Issues Auditing, Earnings Management, Governance

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 three important observations using a difference-in-differences design and two measures of tax planning. First, we find that firms generally report significantly lower current year uncertain tax benefits in the Schedule UTP reporting era. Second, we find these firms do not exhibit a change in cash effective tax rates. Third, we observe that while aggressive tax-planning firms and firms with more foreign presence likely face greater risk with increased transparency under Schedule UTP disclosures, these firms do not exhibit a response to Schedule UTP that is significantly different from that of other firms. Collectively, our results suggest that firms appear to have uniformly adjusted their reporting of uncertain tax benefits without altering the underlying nature of their tax planning.

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2010A review of tax research 2008Long-Run Corporate Tax Avoidance 2007Inference with Difference-in-Differences and Other Panel Data 2009Corporate Tax Avoidance and Firm Value 2008What does tax aggressiveness signal? Evidence from stock price reactions to news about tax shelter involvement 2008Financial Accounting Standards Board (FASB)2012Equity Risk Incentives and Corporate Tax Aggressiveness 1997Determinants of the variability in corporate effective tax rates: Evidence from longitudinal data

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