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

36 Pages Posted: 11 Feb 2011 Last revised: 28 Sep 2013

See all articles by Lisa De Simone

Lisa De Simone

Stanford Graduate School of Business

John R. Robinson

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

Bridget Stomberg

Indiana University - Kelley School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: February 10, 2011

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.

Keywords: Effective tax rate, uncertain tax positions, tax avoidance

JEL Classification: M41, H25

Suggested Citation

De Simone, Lisa and Robinson, John R. and Stomberg, Bridget, Distilling the Reserve for Uncertain Tax Positions: The Revealing Case of Black Liquor (February 10, 2011). 2011 American Taxation Association Midyear Meeting Paper: Research-in-Process Session. Available at SSRN: https://ssrn.com/abstract=1759987 or http://dx.doi.org/10.2139/ssrn.1759987

Lisa De Simone (Contact Author)

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

John R. Robinson

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

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