Measuring Tax Authority Monitoring

Journal of the American Taxation Association, forthcoming.

Posted: 28 Apr 2019 Last revised: 19 Feb 2021

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: February 18, 2021

Abstract

Despite growing academic interest in tax authority monitoring, the literature remains lacking a summary measure of realized tax authority monitoring that can be constructed from firms’ publicly available financial statement information. The purpose of this study is to develop such a measure. Specifically, we view unrecognized tax benefit (UTB) releases due to settlements with the tax authority to indicate greater tax authority monitoring, and UTB releases due to lapses in the statute of limitations to indicate lesser tax authority monitoring. Among other tests, we validate a new measure of tax authority monitoring utilizing data from UTB releases by documenting its positive associations with predicted determinants of tax authority monitoring and by showing that it varies across time 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 (February 18, 2021). Journal of the American Taxation Association, forthcoming., 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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