Seeking Shelter: Empirically modeling tax shelters using financial statement information

Petro Lisowsky

Research output: Contribution to journalReview articlepeer-review

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 booktax 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.

Original languageEnglish (US)
Pages (from-to)1693-1720
Number of pages28
JournalAccounting Review
Volume85
Issue number5
DOIs
StatePublished - Sep 1 2010

Keywords

  • Book-tax differences
  • FIN 48
  • Roc curve
  • Tax cushion
  • Tax shelter

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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