Seeking Shelter: Empirically Modeling Tax Shelters Using Financial Statement Information
- 1 September 2010
- journal article
- Published by American Accounting Association in The Accounting Review
- Vol. 85 (5), 1693-1720
- https://doi.org/10.2308/accr.2010.85.5.1693
Abstract
Using confidential tax shelter and tax return data obtained from the Internal Revenue Service, this study develops and validates an expanded model for inferring the likelihood that a firm engages in a tax shelter. Results show that tax shelter likelihood is positively related to subsidiaries located in tax havens, foreign-source income, inconsistent book-tax treatment, litigation losses, use of promoters, profitability, and size, and negatively related to leverage. Supplemental tests show that total book-tax differences (BTDs) and the contingent tax liability reserve are significantly related to tax shelter usage, while discretionary permanent BTDs and long-run cash effective tax rates are not. Finally, the model is weaker, yet still significant, in the FIN 48 disclosure environment. This research provides investors and policymakers with an extended, validated measure to calculate the presence of extreme cases of corporate tax aggressiveness. Such information could also aid analysts and other tax and non-tax researchers in assessing the benefits and risks of firm behavior.Keywords
This publication has 30 references indexed in Scilit:
- Estimating Standard Errors in Finance Panel Data Sets: Comparing ApproachesThe Review of Financial Studies, 2008
- IPO Failure RiskJournal of Accounting Research, 2007
- Tax shelters and corporate debt policyJournal of Financial Economics, 2006
- Corporate tax avoidance and high-powered incentivesJournal of Financial Economics, 2006
- Firms' Off‐Balance Sheet and Hybrid Debt Financing: Evidence from Their Book‐Tax Reporting DifferencesJournal of Accounting Research, 2005
- Discussion of Ultimate Ownership, Income Management, and Legal and Extra‐Legal InstitutionsJournal of Accounting Research, 2004
- Bankruptcy Prediction with Industry Effects*European Finance Review, 2004
- Debt-Equity Hybrid SecuritiesJournal of Accounting Research, 1999
- Book-Tax Differences and Internal Revenue Service AdjustmentsJournal of Accounting Research, 1998
- Fiscal Paradise: Foreign Tax Havens and American BusinessThe Quarterly Journal of Economics, 1994