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Distilling the Reserve for Uncertain Tax Positions: The Revealing Case of Black LiquorLisa De SimoneUniversity of Texas at Austin - Department of Accounting John R. RobinsonUniversity of Texas at Austin Bridget StombergUniversity of Texas at Austin February 10, 2011 2011 American Taxation Association Midyear Meeting Paper: Research-in-Process Session Abstract: We examine the extent to which tax accruals, specifically the reserve for uncertain tax benefits, influence common empirical measures of income tax avoidance. We analyze the financial statement disclosures for 19 paper companies that received a total of $6.4 billion in direct government subsidies structured as refundable excise taxes during 2009. Each of these companies included the refunds in financial income in 2009, but fourteen of these firms excluded all or part of the refunds from taxable income. Despite the unprecedented nature of the exclusion, we find significant variation in the tax accruals meant to represent uncertain tax positions. Our evidence suggests the subjectivity of management’s decision to establish a reserve for uncertain tax positions can result in biased measures of tax avoidance constructed from financial reports.
Number of Pages in PDF File: 36 Keywords: Effective tax rate, uncertain tax positions, tax avoidance JEL Classification: M41, H25 working papers seriesDate posted: February 11, 2011 ; Last revised: February 15, 2011Suggested CitationContact Information
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