Measuring Tax Authority Monitoring

44 Pages Posted: 28 Apr 2019 Last revised: 18 Oct 2019

See all articles by Andrew Finley

Andrew Finley

Claremont McKenna College - Robert Day School of Economics and Finance

James Stekelberg

Colorado State University, Fort Collins - Department of Accounting

Date Written: October 17, 2019

Abstract

Despite growing academic interest in tax authority monitoring, a consensus definition of monitoring has not yet emerged from this literature. Additionally, the various measures of monitoring that have been employed in prior research have a number of drawbacks. In this study, we develop a summary measure of tax authority monitoring that can be constructed from firms’ publicly-available financial statement information. Specifically, we view unrecognized tax benefit (UTB) releases due to settlements with the tax authority, net of UTB releases due to lapses in the statute of limitations, to indicate tax authority monitoring. Among other tests, we validate this measure by documenting its positive association with predicted determinants of tax authority monitoring and by showing that it varies across time and industries in expected ways. We believe our measure should be useful to future researchers studying tax authority monitoring in a variety of settings.

Keywords: Tax Authority Monitoring; Tax Enforcement; Unrecognized Tax Benefits; External Monitoring

Suggested Citation

Finley, Andrew and Stekelberg, James, Measuring Tax Authority Monitoring (October 17, 2019). Available at SSRN: https://ssrn.com/abstract=3361114 or http://dx.doi.org/10.2139/ssrn.3361114

Andrew Finley

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States

James Stekelberg (Contact Author)

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

256 Rockwell Hall
Fort Collins, CO 80523
United States

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