Judge Ideology and Corporate Tax Planning

54 Pages Posted: 27 Jan 2020 Last revised: 22 May 2020

See all articles by Travis Chow

Travis Chow

Singapore Management University - School of Accountancy

Allen Huang

Hong Kong University of Science and Technology - Department of Accounting

Kai Wai Hui

The University of Hong Kong (HKU) - Department of Accounting

Terry J. Shevlin

University of California-Irvine

Date Written: May 20, 2020

Abstract

We investigate whether and how the federal judiciary affects corporate tax planning. We find that firms engage in less aggressive tax planning when Circuit Court and Tax Court judges are more liberal. This effect is economically significant and robust across various measures of tax planning. We further detail specific tax planning tactics in response to liberal judge ideology, such as shifting less income overseas, conducting more tax planning in foreign jurisdictions, and acquiring more auditor-provided tax services. Firms also avoid liberal judges through forum shopping. Finally, we show that IRS enforcement complements the judge ideology effect. Overall, we are the first to demonstrate the judicial branch as a key determinant of corporate tax planning, which contributes to a more complete understanding of tax enforcement.

Keywords: Judge ideology, federal judiciary, tax planning, income shifting, forum shopping, Internal Revenue Service

JEL Classification: H25, H26, K34, K41, K42

Suggested Citation

Chow, Travis and Huang, Allen and Hui, Kai Wai and Shevlin, Terry J., Judge Ideology and Corporate Tax Planning (May 20, 2020). Available at SSRN: https://ssrn.com/abstract=3513154 or http://dx.doi.org/10.2139/ssrn.3513154

Travis Chow

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore
+65 6808 5450 (Phone)

Allen Huang (Contact Author)

Hong Kong University of Science and Technology - Department of Accounting ( email )

LSK Business School Building
HKUST
Clear Water Bay, Kowloon
Hong Kong
+852-23587559 (Phone)

HOME PAGE: http://www.AllenHuang.org

Kai Wai Hui

The University of Hong Kong (HKU) - Department of Accounting ( email )

Pokfulam Road
Hong Kong, Pokfulam
Hong Kong

Terry J. Shevlin

University of California-Irvine ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States
2065509891 (Phone)

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