Nonrecurring Income Taxes

75 Pages Posted: 23 Jan 2016 Last revised: 12 Jul 2021

See all articles by Dain C. Donelson

Dain C. Donelson

University of Iowa

Colin Koutney

Donald G. Costello College of Business at George Mason University

Lillian F. Mills

University of Texas at Austin - McCombs School of Business; The University of Texas at Austin

Date Written: July 2021

Abstract

Nonrecurring income taxes are transitory items that exclusively affect earnings through tax expense. We conduct the first in-depth examination of nonrecurring income taxes to determine whether they are primarily attributable to economic events or managerial opportunism. We find nonrecurring income taxes have little predictive power for future earnings, are not associated with meeting or beating analyst earnings forecasts, and are not associated with future tax expense restatements. We also provide descriptive information about the tax events that frequently result in nonrecurring income taxes and find the most common events are tax audit resolutions, valuation allowance changes, tax law changes, mergers, and repatriations. Overall, our findings suggest that nonrecurring income taxes are driven by economics rather than opportunism. We recommend researchers consider whether the inclusion of nonrecurring income taxes (or specific types of nonrecurring taxes) is appropriate when using ETR levels or volatility as measures of tax risk, avoidance or aggressiveness.

Keywords: Nonrecurring Income Taxes, Accounting for Income Taxes, ASC 740

JEL Classification: H25, M41

Suggested Citation

Donelson, Dain C. and Koutney, Colin and Mills, Lillian F. and Mills, Lillian F., Nonrecurring Income Taxes (July 2021). Available at SSRN: https://ssrn.com/abstract=2720464 or http://dx.doi.org/10.2139/ssrn.2720464

Dain C. Donelson

University of Iowa ( email )

108 Pappajohn Business Building
Iowa City, 52242-1000
United States

Colin Koutney (Contact Author)

Donald G. Costello College of Business at George Mason University ( email )

Fairfax, VA 22030
United States

Lillian F. Mills

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

The University of Texas at Austin ( email )

McCombs School of Business
1 University Station B6400
Austin, TX 78712-0211

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