Schedule UTP: Stock Price Reaction and Economic Consequences

44 Pages Posted: 3 Jul 2012 Last revised: 25 Aug 2018

See all articles by John L. Abernathy

John L. Abernathy

Kennesaw State University

Stephan Davenport

University of Tennessee, Chattanooga - Department of Accounting

Eric T. Rapley

Colorado State University, Fort Collins - Department of Accounting

Date Written: July 2, 2012

Abstract

In 2010, the Internal Revenue Service (IRS) announced the requirement to disclose uncertain tax positions (UTP) on a new schedule (Schedule UTP) to be filed with federal corporate income tax returns. Schedule UTP could increase firm's tax burden by providing a roadmap of tax planning strategies directly to the IRS. Stock returns around the development of Schedule UTP are negative; consistent with investors' concern that Schedule UTP would impose costs on firms. However, we document a significant positive stock price reaction to the release of the final draft of Schedule UTP in which the IRS relaxed many of the controversial provisions of Schedule UTP. Additionally, we find this positive reaction is incrementally larger for more tax aggressive firms. Finally, we find a significant decrease in reported uncertain tax benefits (UTBs) and additions to UTBs after the adoption of Schedule UTP in 2010.

Keywords: Schedule UTP, tax avoidance, uncertain tax positions, event study

Suggested Citation

Abernathy, John L. and Davenport, Stephan and Rapley, Eric T., Schedule UTP: Stock Price Reaction and Economic Consequences (July 2, 2012). Journal of American Taxation Association, Vol. 35, No. 1, 2013 DOI: 10.2308/atax-50246; 2012 AAA Annual Meeting - Tax Concurrent Sessions. Available at SSRN: https://ssrn.com/abstract=2098071 or http://dx.doi.org/10.2139/ssrn.2098071

John L. Abernathy

Kennesaw State University ( email )

1000 Chastain Road
Kennesaw, GA 30144
United States

Stephan Davenport (Contact Author)

University of Tennessee, Chattanooga - Department of Accounting ( email )

615 McCallie Avenue
Chattanooga, TN 37403-2598
United States

Eric T. Rapley

Colorado State University, Fort Collins - Department of Accounting ( email )

257 Rockwell Hall
Fort Collins, CO 80523
United States
970.491.7481 (Phone)

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