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The Corporate Response to Government Attacks on Tax Shelters

International Journal of Financial Research Vol. 8, No. 1; 2017

17 Pages Posted: 25 Sep 2017  

Noel P. Brock

Eastern Michigan Univeristy

Edward J. Schnee

University of Alabama - Culverhouse School of Accountancy

Shane Stinson

University of Alabama

Date Written: January 9, 2017

Abstract

We examine the effectiveness of four federal government actions, all of which were designed to curb the proliferation of corporate tax shelters dating back to the 1990s, at eliciting measurable changes in characteristics commonly associated with tax shelter firms. Our results suggest that the government’s initial attacks on corporate tax shelters in the early 2000s elicited significant declines in book-tax differences, discretionary accruals, and the use of Big N audit firms, which contributed to gradual reductions in the estimated likelihood of tax sheltering for both multinational and purely domestic firms. Conversely, later attempts to discourage corporate tax shelters proved ineffective, likely due in part to the effectiveness of previous government attacks and a faltering economy. This study addresses calls from prior literature for a better understanding of factors determining corporate tax avoidance and offers new evidence of multi-faceted taxpayer reactions to corporate tax reform.

Keywords: Circular 230, corporate tax avoidance, reportable transactions, tax reform, tax shelters

JEL Classification: K34, G38

Suggested Citation

Brock, Noel P. and Schnee, Edward J. and Stinson, Shane, The Corporate Response to Government Attacks on Tax Shelters (January 9, 2017). International Journal of Financial Research Vol. 8, No. 1; 2017 . Available at SSRN: https://ssrn.com/abstract=3041435

Noel P. Brock (Contact Author)

Eastern Michigan Univeristy ( email )

Eastern Michigan University
Ypsilanti, MI 48197
United States
619-300-1207 (Phone)

HOME PAGE: http://www.emich.edu/cob/faculty/accounting_finance/brock.php

Edward J. Schnee

University of Alabama - Culverhouse School of Accountancy ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States

Shane Stinson

University of Alabama ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States

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