Assessing Uncertain Tax Benefit Aggressiveness

54 Pages Posted: 18 Jan 2008 Last revised: 14 Oct 2009

Raquel Meyer Alexander

Washington and Lee University

Michael Ettredge

University of Kansas - School of Business

Mary S. Stone

University of Alabama - Culverhouse College of Commerce & Business Administration

Lili Sun

University of North Texas - Department of Accounting

Date Written: October 12, 2009

Abstract

In the first quarter of 2007, the FASB’s FIN 48 required calendar-year companies to disclose new information about their uncertain tax benefit liabilities (UTBs). These liabilities arise from positions, taken in tax returns to defer or avoid taxes, that are not likely to be sustained if audited by taxing authorities. We argue that data newly disclosed under FIN 48 enable us to obtain proxies for (1) companies’ cumulative prior aggressiveness in taking uncertain tax benefit positions, and (2) companies’ cumulative prior aggressiveness in recording UTB liabilities. We refer to the first construct as ‘tax position aggressiveness,’ and to the second as ‘tax reporting aggressiveness.’ We hypothesize and find that both types of aggressiveness are influenced by (1) proxies for managers’ incentives and opportunities for aggressive behavior, and by (2) proxies for managers’ history of similar aggressive behavior. In addition we find that tax position and tax reporting aggressiveness are positively associated.

Keywords: FIN 48; uncertain tax benefits; tax reporting; tax positions; tax reserves; tax cushion; earnings management; corporate governance

Suggested Citation

Alexander, Raquel Meyer and Ettredge, Michael and Stone, Mary S. and Sun, Lili, Assessing Uncertain Tax Benefit Aggressiveness (October 12, 2009). Available at SSRN: https://ssrn.com/abstract=1085307 or http://dx.doi.org/10.2139/ssrn.1085307

Raquel Meyer Alexander (Contact Author)

Washington and Lee University ( email )

204 W Washington St
Lexington, VA 24450
United States

Michael L. Ettredge

University of Kansas - School of Business ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States
785-864-7537 (Phone)
785-864-5328 (Fax)

Mary S. Stone

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Box 870223
School of Accountancy 314 Alston Hall
Tuscaloosa, AL 35487-0223
United States
205-348-2915 (Phone)
205-348-8453 (Fax)

Lili Sun

University of North Texas - Department of Accounting ( email )

1155 Union Circle #305219
Denton, TX 76203-5017
United States
940-565-3077 (Phone)

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