This study examines the determinants of tax aggressiveness. I utilize the unrecognized tax benefits (UTB) disclosed by the adoption of Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) to proxy for firms’ tax aggressiveness. I hand collect UTB disclosures for 562 calendar year-end firms in the S and P 1500. Controlling for firms’ incentives and abilities to engage in aggressive tax positions (tax factors) and firms’ discretion over recognizing the financial reporting benefits of aggressive tax positions, I examine whether firms’ level of aggressive tax positions is influenced by (1) financial reporting aggressiveness, (2) choice of auditor, (3) analyst coverage, and (4) corporate governance quality.
Using ordinary least squares regression, I examine the determinants of firms total UTB and its permanent and temporary components. I find that UTB and its permanent component are positively associated with firm size, presence of foreign operations, research and development activity, selling, general and administrative activity, firm value, and the probability that the firm engages in tax shelter activity. However, the temporary component is only increasing in firm size. Also, I find that UTB and its permanent component are positively associated with firms engaging in financial reporting aggressiveness and increasing auditor provided tax services, but negatively associated with analyst coverage, while the temporary component is only positively associated with financial reporting aggressiveness.
Finally, I split the sample based on firms’ use of discretion over recognizing the tax benefits of aggressive tax positions prior to FIN 48 adoption. I find that firms which aggressively recognize tax benefits prior to FIN 48 adoption (i.e. firms that increased UTBs at FIN 48 adoption) have UTBs that are positive and significantly associated with (1) the probability that a firm engages in tax shelter activity, (2) auditor provided tax services, and (3) their record of using last chance earnings management to meet or beat analyst forecasts. These associations are not significant for firms that did not aggressively recognize tax benefits prior to FIN 48 adoption, suggesting that firms’ financial reporting aggressiveness is positively associated with firms’ level of tax aggression.
| Identifer | oai:union.ndltd.org:tamu.edu/oai:repository.tamu.edu:1969.1/ETD-TAMU-2010-08-8401 |
| Date | 2010 August 1900 |
| Creators | McDonald, Janet L. |
| Contributors | Kinney, Michael R. |
| Source Sets | Texas A and M University |
| Language | en_US |
| Detected Language | English |
| Type | thesis, text |
| Format | application/pdf |
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