Using IRS Data to Identify Income Shifting Firms

49 Pages Posted: 9 Aug 2014 Last revised: 22 Dec 2016

Lisa De Simone

Stanford Graduate School of Business

Lillian F. Mills

University of Texas at Austin - McCombs School of Business

Bridget Stomberg

University of Georgia - C. Herman and Mary Virginia Terry College of Business

Date Written: December 15, 2016

Abstract

We use confidential Internal Revenue Service data on the magnitude of U.S.-foreign intercompany transactions to develop a measure of the likelihood that U.S. multinational entities (MNEs) shift income out of the U.S. Results show that the likelihood of net outbound income shifting is positively related to tax haven subsidiaries, high tech operations, income tax incentives, R&D, and foreign profitability, and negatively related to foreign sales, gross profits, size, and capital expenditures. Supplemental analyses explore cross-sectional differences in IRS audit scrutiny of outbound income shifters and aggressive income shifters. Results suggest outbound and aggressive income shifters are no more likely to be audited than other MNEs and that the rate of audit of both outbound shifters and aggressive shifters has decreased since the financial crisis. Our study provides researchers, investors and tax authorities with a measure of the likelihood that a firm engages in net outbound or potentially aggressive income shifting.

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

Suggested Citation

De Simone, Lisa and Mills, Lillian F. and Stomberg, Bridget, Using IRS Data to Identify Income Shifting Firms (December 15, 2016). Stanford University Graduate School of Business Research Paper No. 14-29; Rock Center for Corporate Governance at Stanford University Working Paper No. 192. Available at SSRN: https://ssrn.com/abstract=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

University of Georgia - C. Herman and Mary Virginia Terry College of Business ( email )

Brooks Hall
310 Herty Drive
Athens, GA 30602-6269
United States

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