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

37 Pages Posted: 5 Aug 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: July 18, 2011

Abstract

We examine the extent to which the reserve for unrecognized tax benefits consistently reflects uncertain 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, but 14 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 that additions to the reserve for uncertain tax benefits are an inconsistent empirical measure of uncertain tax avoidance because of the wide latitude allowed managers in making judgments about tax uncertainties. Moreover, we find some evidence that these judgments are related to characteristics generally associated with weak corporate governance.

Keywords: Uncertain tax positions, FIN 48, 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 (July 18, 2011). 2011 American Accounting Association Annual Meeting - Tax Concurrent Sessions. Available at SSRN: https://ssrn.com/abstract=1905209 or http://dx.doi.org/10.2139/ssrn.1905209

Lisa De Simone (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
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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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