Using IRS Data to Identify Income Shifting to Foreign Affiliates

Review of Accounting Studies, Forthcoming

Posted: 9 Aug 2014 Last revised: 24 Jan 2019

See all articles by Lisa De Simone

Lisa De Simone

Stanford Graduate School of Business

Lillian F. Mills

University of Texas at Austin - McCombs School of Business

Bridget Stomberg

Indiana University - Kelley School of Business

Date Written: January 22, 2019

Abstract

Income shifting is a significant source of tax planning for U.S. corporations. We use confidential Internal Revenue Service (IRS) data to develop a firm-year measure of income shifting. Our measure captures the relative extent of U.S. multinational entity (MNE) net intercompany payments out of the United States to CFCs. Our data show that the majority of sample firms report net inbound intercompany payments on average. Sample firms report nearly $830 billion of outbound payments and over $1 trillion of inbound payments in total. Companies reporting net outbound payments are smaller and operate in high-tech industries. Supplemental analyses show that firms with outbound intercompany payments have a lower rate of IRS audit and are no more likely to be assessed additional taxes upon audit. Our study provides a measure based on publicly available data that researchers, investors, and policymakers can use to infer outbound income shifting.

Keywords: income shifting, tax avoidance, international tax, IRS audit

Suggested Citation

De Simone, Lisa and Mills, Lillian F. and Stomberg, Bridget, Using IRS Data to Identify Income Shifting to Foreign Affiliates (January 22, 2019). Review of Accounting Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2477537 or http://dx.doi.org/10.2139/ssrn.2477537

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

Lillian F. Mills (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
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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