The Effect of Unaudited Tax Positions on Corporate Tax Aggressiveness: Evidence from Statute of Limitations Lapses

56 Pages Posted: 13 Sep 2021 Last revised: 7 Feb 2022

See all articles by Matthew Holt

Matthew Holt

University of Georgia - J.M. Tull School of Accounting

Michelle L. Nessa

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management

Erin Towery

University of Georgia

Date Written: January 1, 2022

Abstract

Tax authority resource constraints result in aggressive tax positions often going unaudited. This study uses statute of limitations lapses to examine the effect of unaudited tax positions on corporate tax aggressiveness. We first document that tax positions are more likely to go unaudited when firms claim less aggressive tax positions, when the tax authority has fewer resources, and when firms have more extensive geographic footprints. In our main analyses, we find that firms become less tax aggressive subsequent to positions going unaudited, consistent with firms anticipating heightened tax authority scrutiny after disclosing unaudited tax positions in their financial statements. In supplemental analyses, we find Internal Revenue Service downloads of financial statements increase after firms disclose unaudited tax positions, but tax settlements do not increase. Our findings shed light on a previously unexplored facet of taxpayer-tax authority interactions and are important in light of increased budget constraints faced by tax authorities worldwide.

Keywords: Tax Authority, Statute of Limitations, Tax Aggressiveness, Corporate Disclosure, Unrecognized Tax Benefits

JEL Classification: G30, H26, M41

Suggested Citation

Holt, Matthew and Nessa, Michelle L. and Towery, Erin, The Effect of Unaudited Tax Positions on Corporate Tax Aggressiveness: Evidence from Statute of Limitations Lapses (January 1, 2022). Available at SSRN: https://ssrn.com/abstract=3920571 or http://dx.doi.org/10.2139/ssrn.3920571

Matthew Holt

University of Georgia - J.M. Tull School of Accounting

Athens, GA 30602
United States

Michelle L. Nessa

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States

Erin Towery (Contact Author)

University of Georgia ( email )

Terry College of Business
Athens, GA 30602-6254
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
224
Abstract Views
898
Rank
289,281
PlumX Metrics