Do IRS Audits Deter Corporate Tax Avoidance?
- 1 April 2012
- journal article
- Published by American Accounting Association in The Accounting Review
- Vol. 87 (5), 1603-1639
- https://doi.org/10.2308/accr-50187
Abstract
We extend research on the determinants of corporate tax avoidance to include the role of Internal Revenue Service (IRS) monitoring. Our evidence from large samples implies that U.S. public firms undertake less aggressive tax positions when tax enforcement is stricter. Reflecting its first-order economic impact on firms, our coefficient estimates imply that raising the probability of an IRS audit from 19 percent (the 25th percentile in our data) to 37 percent (the 75th percentile) increases their cash effective tax rates, on average, by nearly two percentage points, which amounts to a 7 percent increase in cash effective tax rates. These results are robust to controlling for firm size and time, which determine our primary proxy for IRS enforcement, in different ways; specifying several alternative dependent and test variables; and confronting potential endogeneity with instrumental variables and panel data estimations, among other techniques. JEL Classifications: M40; G34; G32; H25.Keywords
This publication has 83 references indexed in Scilit:
- The Effect of Public Disclosure on Reported Taxable Income: Evidence from Individuals and Corporations in JapanSSRN Electronic Journal, 2012
- The Effect of Political Sensitivity and Bargaining Power on Taxes: Evidence from Federal ContractorsSSRN Electronic Journal, 2011
- Do Auditor‐Provided Tax Services Improve the Estimate of Tax Reserves?*Contemporary Accounting Research, 2011
- Financial Statement Incentives and Benefits of Voluntary Real-Time Tax AuditsSSRN Electronic Journal, 2011
- The Effect of Tax Authority Monitoring and Enforcement on Financial Reporting QualitySSRN Electronic Journal, 2011
- Public and private enforcement of securities laws: Resource-based evidenceJournal of Financial Economics, 2009
- Corporate Tax Avoidance and Firm ValueThe Review of Economics and Statistics, 2009
- Theft and taxesJournal of Financial Economics, 2007
- Institutional Investors and Equity Returns: Are Short-term Institutions Better Informed?The Review of Financial Studies, 2007
- Corporate tax avoidance and high-powered incentivesJournal of Financial Economics, 2006