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

39 Pages Posted: 31 Jan 2011 Last revised: 28 Sep 2013

See all articles by John R. Robinson

John R. Robinson

Texas A&M University; Texas A&M University - Department of Accounting

Bridget Stomberg

Indiana University - Kelley School of Business

Lisa De Simone

Stanford Graduate School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: 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. .

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

JEL Classification: M41, H25

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: https://ssrn.com/abstract=1751622 or http://dx.doi.org/10.2139/ssrn.1751622

John R. Robinson (Contact Author)

Texas A&M University ( email )

mail stop 4353
Mays School of Business
college state, TX 77843-4353
United States
979-845-3457 (Phone)
979-845-0028 (Fax)

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States

Bridget Stomberg

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Lisa De Simone

Stanford Graduate School of Business ( email )

655 Knight 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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