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http://ssrn.com/abstract=1751622
 
 

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Distilling the Reserve for Uncertain Tax Positions: The Revealing Case of Black Liquor


John R. Robinson


University of Texas at Austin

Bridget Stomberg


University of Georgia - C. Herman and Mary Virginia Terry College of Business

Lisa De Simone


Stanford Graduate School of Business

March 9, 2012


Abstract:     
We examine the extent to which management judgment affects the reserve for unrecognized tax benefits. We analyze the financial statement disclosures of 19 paper companies that received a total of $6.4 billion in refundable excise taxes during 2009. All of these companies included the refunds in financial income, but 14 excluded all or part of the refunds from taxable income. Despite the magnitude and unprecedented nature of the exclusion, only five of the excluding firms accrued a full reserve for this uncertain position. Six of the excluding firms did not accrue any reserve. This variation suggests managers enjoy wide latitude in applying the more likely than not standard for determining additions to the reserve. Our findings suggest that financial statement users should exercise caution when comparing tax reserves across companies. In addition, we find some evidence that income-increasing decisions are related to characteristics generally associated with weak corporate governance. .

Number of Pages in PDF File: 39

Keywords: Effective Tax Rate, Uncertain Tax Positions, Tax Avoidance

JEL Classification: M41, H25

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Date posted: January 31, 2011 ; Last revised: September 28, 2013

Suggested Citation

Robinson, John R. and Stomberg, Bridget and De Simone, Lisa, Distilling the Reserve for Uncertain Tax Positions: The Revealing Case of Black Liquor (March 9, 2012). Available at SSRN: http://ssrn.com/abstract=1751622 or http://dx.doi.org/10.2139/ssrn.1751622

Contact Information

John R. Robinson (Contact Author)
University of Texas at Austin ( email )
Austin, TX 78712
United States
512-471-5315 (Phone)
512-471-3904 (Fax)
Bridget Stomberg
University of Georgia - C. Herman and Mary Virginia Terry College of Business ( email )
Brooks Hall
310 Herty Drive
Athens, GA 30602-6269
United States
Lisa De Simone
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States
650-723-3874 (Phone)
650-724-3083 (Fax)
HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/lisa-de-simone

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