Unintended Consequences of Linking Tax Return Disclosures to Financial Reporting for Income Taxes: Evidence from Schedule UTP

2017 ◽  
Vol 92 (5) ◽  
pp. 201-226 ◽  
Author(s):  
Erin M. Towery
Keyword(s):  
Financial Reporting ◽  
Income Tax ◽  
Multinational Firms ◽  
Unintended Consequences ◽  
Income Taxes ◽  
Unintended Effects ◽  
Reporting Requirements ◽  
Reporting Decisions ◽  
Tax Returns ◽  
Tax Benefits

ABSTRACT This study exploits the implementation of IRS Schedule UTP to examine how linking tax return disclosures to financial reporting for income taxes affects firms' reporting decisions. Using confidential tax return data and public financial statement data, I find that after imposition of Schedule UTP reporting requirements, firms report lower financial reporting reserves for uncertain income tax positions, but do not claim fewer income tax benefits on their federal tax returns. The reduction in reserves is concentrated among multinational firms and firms with larger reserves prior to Schedule UTP. These findings suggest that some firms changed their financial reporting for uncertain tax positions to avoid Schedule UTP reporting requirements without changing the underlying positions. In contrast with prior studies, this evidence represents a permanent, rather than a temporary, tax-induced reporting change. My results imply that linking tax return disclosures to financial reporting can have unintended effects on firms' reporting decisions.

The Impact of Embedded Intelligent Agents on Tax-Reporting Decisions

2002 ◽  
Vol 24 (2) ◽  
pp. 60-78 ◽  
Author(s):  
John J. Masselli ◽  
Robert C. Ricketts ◽  
Vicky Arnold ◽  
Steve G. Sutton
Keyword(s):  
Intelligent Agents ◽  
General Assumption ◽  
Unintended Effects ◽  
Form Errors ◽  
Reporting Requirements ◽  
Tax Laws ◽  
Reporting Decisions ◽  
Tax Returns ◽  
Tax Reporting ◽  
The Impact

The use of tax preparation software to meet federal tax-reporting requirements has dramatically increased in the last decade. The general assumption is that such software improves the accuracy of taxpayers' returns, in part because embedded intelligent agents identify potential form errors, provide interpretations of tax laws, and highlight potential IRS audit flags. However, it is possible that these intelligent agents may have other, unintended effects as well. In particular, it is likely that the audit warnings embedded in many of these products may cause many taxpayers to take more conservative positions in their tax returns. Taxpayers most likely to be affected in this way are those who are relatively less knowledgeable about tax laws and reporting requirements. This study presents the results of a computerized tax experiment that are consistent with the above expectations. For novice taxpayers, the audit flags embedded in the software led to conservative adjustments that are rather extreme, resulting in significantly higher reported taxable incomes relative to their counterparts who did not have access to the embedded audit flags. Knowledgeable taxpayers, in contrast, maintained essentially the same level of taxable income and corresponding tax liability despite software warnings of potential audit.

Do Income Tax-Related Deficiencies in Publicly Disclosed PCAOB Part II Reports Influence Audit Client Financial Reporting of Income Tax Accounts?

2015 ◽  
Vol 91 (5) ◽  
pp. 1411-1439 ◽  
Author(s):  
Katharine D. Drake ◽  
Nathan C. Goldman ◽  
Stephen J. Lusch
Keyword(s):  
Financial Reporting ◽  
Income Tax ◽  
Income Taxes ◽  
Deferred Tax Assets ◽  
Quality Controls ◽  
Valuation Allowance ◽  
Tax Benefits ◽  
Deferred Tax

ABSTRACT Deloitte's 2007 PCAOB Part II report identifies, among other issues, concerns related to the audit firm's quality controls with respect to auditing income tax accounts. We investigate whether Deloitte's actions to remediate the PCAOB's concerns are associated with changes to their clients' financial reporting for income taxes. We find that Deloitte's clients increased the reported valuation allowance on deferred tax assets and increased the reported reserve for uncertain tax benefits (UTBs) in response to increased auditor scrutiny over income tax accounts. Additionally, we find that in subsequent periods, Deloitte's clients report valuation allowances and UTB balances that are not significantly different than other annually inspected auditors, consistent with Deloitte changing the quality controls related to audits of income tax accounts after the failed remediation of the 2007 Part II report.

Analisis Ekualisasi SPT Masa PPN Dengan SPT PPh Badan Terhadap Kewajiban Perpajakan PT. Adiyana Teknik Mandiri

2018 ◽  
Vol 6 (3) ◽  
pp. 117-122
Author(s):  
Irham Firdauza Pratama ◽  
Hadi Sutomo
Keyword(s):  
Income Tax ◽  
Value Added ◽  
Preventive Measure ◽  
Income Taxes ◽  
Financial Statement ◽  
Corporate Income Tax ◽  
Applicable Law ◽  
Tax Returns ◽  
Tax Audit ◽  
The Difference

Many cases are related to corrections caused by the occurrence of VAT and Income Tax equalization. The difference in reporting the circulation of business on the VAT SPT with the Corporate Income Tax Return is the object of the tax authorities' examination. Basically, equalization is not to find the same number of circulation businesses but to find the cause of the difference between the VAT Period of Income Tax and the Corporate Income Tax Return. These differences are often due to differences in provisions between Income Taxes and Value Added Taxes, such as tax objects, exchange rates, and so on. The purpose of this study was to find out how to report the circulation of business between the VAT Period of VAT and Corporate Income Tax Returns of PT. AdiyanaTeknikMandiri. To find out the process and analysis of equalization between VAT Period of VAT and Corporate Income Tax Returns at PT. AdiyanaTeknikMandiri. To find out the equalization benefits of the VAT Period SPT with Corporate Income Tax Returns for companies. This study uses a comparative descriptive method with qualitative and quantitative data, namely by analyzing and processing financial statement data and existing fiscal reports, then comparing the circulation of business to the results of calculations according to the VAT Period of VAT and Corporate Income Tax Returns, then processed further to provide an explanation of the difference in business circulation generated. The results of this study indicate that PT. AdiyanaTeknikMandiri that the company in reporting the circulation of its business has not been reported as it should, it is known after equalizing it is known that there is a number of business circulation that has not been reported in the VAT Period SPT report so that it causes a difference in the amount of business circulation between the VAT Period of Income Tax and the Corporate Income Tax Return. Equalization process is carried out by comparing the VAT Period report with the Corporate Income Tax Return, collecting data on business circulation in the ledger, comparing the data obtained, then analyzing the factors that cause the different reporting of business circulation. Equalization benefits for the company, which can be a preventive measure to face a tax audit by the tax authorities, so that the company can explain in accordance with the conditions that occur, equalization can also be a benchmark of compliance and increase the accuracy of taxpayers in reporting the amount of tax obligations in accordance with the applicable law .   Keywords: tax equalization, business circulation, corporate income tax return

How Much Will Firms Pay for Earnings That Do Not Exist? Evidence of Taxes Paid on Allegedly Fraudulent Earnings

2004 ◽  
Vol 79 (2) ◽  
pp. 387-408 ◽  
Author(s):  
Merle Erickson ◽  
Michelle Hanlon ◽  
Edward L. Maydew
Keyword(s):  
Stock Options ◽  
Income Taxes ◽  
Financial Accounting ◽  
Accounting Earnings ◽  
Tax Returns ◽  
Tax Benefits ◽  
Additional Income ◽  
Tax Expense

We analyze a sample of firms accused of fraudulently overstating their earnings and examine the extent, if any, to which they paid additional income taxes on the allegedly fraudulent earnings. Based on restatements of current tax expense adjusted for the tax benefits of stock options, the evidence indicates that many firms included the overstated financial accounting income on their tax returns, thus overpaying their taxes in the process of inflating their accounting earnings. We estimate that the median firm sacrificed eight cents in additional income taxes per dollar of inflated pretax earnings. In aggregate, we estimate that the firms in our sample paid $320 million in taxes on overstated earnings of about $3.36 billion. These results indicate how far managers of firms are willing to go when allegedly inflating earnings.

Balancing Tax and Financial Reporting Objectives: Effective Tax Planning within the Property and Casualty Insurance Industry

2007 ◽  
Vol 22 (2) ◽  
pp. 285-318
Author(s):  
David W. Randolph ◽  
Jim A. Seida
Keyword(s):  
Financial Reporting ◽  
Firm Value ◽  
Insurance Industry ◽  
Tax Planning ◽  
Ethical Considerations ◽  
Loss Reserve ◽  
Reporting Decisions ◽  
Tax Benefits ◽  
Alternative Sources ◽  
Joint Consideration

Tax-planning strategies will not enhance firm value if the tax benefit is less than the (nontax) costs incurred to achieve such benefit. Effective tax planning therefore requires the joint consideration of tax benefits and the costs of obtaining those benefits, rather than a myopic focus on only tax minimization. This case presents the opportunity for you to evaluate alternative sources of tax law and balance tax and nontax concerns (including ethical considerations) as you make the same loss reserve reporting decisions that property-casualty (P&C) insurers faced following the Tax Reform Act of 1986 (TRA86).

The Unintended Consequences of Internal Controls Reporting on Tax Decision Making

2019 ◽  
Vol 42 (1) ◽  
pp. 83-102
Author(s):  
Victoria J. Hansen
Keyword(s):  
Decision Making ◽  
Financial Reporting ◽  
Internal Control ◽  
Unintended Consequences ◽  
Internal Controls ◽  
Corporate Tax ◽  
Material Weakness ◽  
Reporting Requirements ◽  
Internal Control Deficiencies ◽  
The Impact

ABSTRACT This study investigates the impact of the internal controls over financial reporting requirements (ICFR) on the decision making of corporate tax executives. I examine tax executives' decisions to disclose an internal control deficiency by amending a prior year return when the internal control deficiency will be classified as either a significant deficiency or a material weakness. I also examine if tax executives' decisions are impacted by whether amending results in a refund or additional tax due. I find tax executives are less likely to disclose (amend) when the internal control deficiency is classified as a material weakness. When facing a material weakness, 16.7 percent choose not to disclose. Tax executives are also less likely to disclose (amend) when amending results in additional tax due. These results indicate the ICFR requirements may have unintended consequences. If executives do not disclose internal control deficiencies, the reliability of financial reporting is limited.

How Chevron, Texaco, and the Indonesian Government Structured Transactions to Avoid Billions in U.S. Income Taxes

2003 ◽  
Vol 17 (2) ◽  
pp. 107-122 ◽  
Author(s):  
Jeffrey D. Gramlich ◽  
James E. Wheeler
Keyword(s):  
Crude Oil ◽  
Income Tax ◽  
Income Taxes ◽  
Tax Credits ◽  
The Other ◽  
Production Sharing ◽  
Tax Returns ◽  
State Income ◽  
The Government ◽  
State Taxes

This paper explains the transactions, agreements, and accounting that Chevron, Texaco, and the Government of Indonesia used to structure transactions that avoided billions in U.S. income taxes. Although ChevronTexaco became a merged entity on October 9, 2001, for many years Chevron and Texaco operated as separate corporations, with each owning 50 percent of a group of primarily non-U.S. companies collectively known as Caltex. Transactions were structured such that Chevron and Texaco subsidiaries paid Caltex excessive prices for Indonesian crude oil, leading to excessive dividend income (with foreign tax credits) and cost of sales deductions on U.S. income tax returns. When one of the equal shareholders purchased more overpriced oil than the other, Caltex paid monthly “Special Dividends” to the “overlifter” that could be construed as cost rebates, not dividends. To compensate for the extra taxes it received, the Government of Indonesia provided Caltex with oil in excess of the amount called for under the formal production-sharing contract (PSC) with the Government of Indonesia. We estimate that this arrangement allowed Chevron and Texaco together to annually avoid paying some $220 million in federal income taxes and $11.1 million in state income taxes from 1964 to 2002. These estimates produce total federal and state taxes avoided of $8.6 billion and $433 million, respectively, for the combined company, ChevronTexaco.

ATA Tax Policy Committee Report—Book-Tax Differences

2015 ◽  
Vol 13 (1) ◽  
pp. 54-85 ◽  
Author(s):  
Debra A. Salbador ◽  
Susan E. Anderson ◽  
William A. Raabe ◽  
Michael S. Schadewald
Keyword(s):  
Financial Reporting ◽  
Income Tax ◽  
Tax Reform ◽  
Committee Report ◽  
Corporate Tax ◽  
Reporting Requirements ◽  
Starting Point ◽  
Corporate Tax Reform ◽  
History Of ◽  
Tax Reporting

ABSTRACT This monograph examines the history of selected important book-tax differences since the inception of the income tax and the financial and tax reporting that has evolved over time that addresses these differences. The purpose is to provide a framework for discussion of policy issues regarding tax reporting and its relation to financial reporting. The focus of this paper is financial and tax reporting requirements. Because the starting point for tax reporting is financial reporting, changes in one have an immediate impact on the other. With movement toward corporate tax reform and continuing consideration of possible convergence with IFRS, it is important to engage in a discussion of this relation and its impact on tax reform.

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