Skip to main content Accessibility help

We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.

Close cookie message
×
Hostname: page-component-5f56664f6-287w5 Total loading time: 0 Render date: 2025-05-07T11:22:12.231Z Has data issue: false hasContentIssue false

5 - An Empirical Examination of Corporate Tax Noncompliance

Published online by Cambridge University Press:  30 July 2009

By
Michelle Hanlon ,
Lillian Mills  and
Joel Slemrod
Edited by
Alan J. Auerbach ,
James R. Hines, Jr.  and
Joel Slemrod
Michelle Hanlon
Affiliation:
University of Michigan
Lillian Mills
Affiliation:
University of Texas
Joel Slemrod
Affiliation:
University of Michigan
Alan J. Auerbach
Affiliation:
University of California, Berkeley
James R. Hines, Jr.
Affiliation:
University of Michigan, Ann Arbor
Joel Slemrod
Affiliation:
University of Michigan, Ann Arbor
Get access

Summary

We appreciate guidance on data questions from Richard Denesha, Donald Lee, John Miller, and Dick Teed. We are grateful for comments on a presentation of preliminary results received from Charles Brown, James Hines, and other members of the University of Michigan public finance workshop and for comments received at the conference from discussants Joe Bankman and Brian Erard, and several other participants.

The Internal Revenue Service (IRS) provided confidential tax information to one of the authors pursuant to provisions of the Internal Revenue Code that allow disclosure of information to a contractor to the extent necessary to perform a research contract for the IRS. None of the confidential tax information received from the IRS is disclosed in this chapter. Statistical aggregates were used so that a specific taxpayer cannot be identified from information supplied by the IRS. Information in this chapter that identifies specific companies was not provided by the IRS and came from public sources, such as reports to shareholders.

Introduction and motivation

This chapter examines the extent and nature of corporate tax noncompliance using previously undisclosed Internal Revenue Service (IRS) operational audits and appeals data merged with confidential tax return data. The extent of tax noncompliance is primarily measured as the level of proposed tax deficiencies under IRS audit, although we also investigate the amount of the proposed deficiencies that are upheld after taxpayer appeals.

Type
Chapter
Information
Taxing Corporate Income in the 21st Century , pp. 171 - 210
Publisher: Cambridge University Press
Print publication year: 2007

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Book purchase

Temporarily unavailable

References

Cloyd, C. Bryan. 1995. “The Effects of Financial Accounting Conformity on Recommendations of Tax Preparers.” Journal of the American Taxation Association 17(2): 50–70.Google Scholar
Cloyd, C. Bryan, Pratt, Jamie, and Stock, Toby. 1996. “The Use of Financial Accounting Choice to Support Aggressive Tax Positions: Public and Private Firms.” Journal of Accounting Research 34(1): 23–43.CrossRefGoogle Scholar
Core, John, and Guay, Wayne. 1999. “The Use of Equity Grants to Manage Optimal Equity Incentive Levels.” Journal of Accounting and Economics 28(2): 151–184.CrossRefGoogle Scholar
Core, John, and Guay, Wayne. 2002. “Estimating the Value of Employee Stock Option Portfolios and Their Sensitivities to Price and Volatility.” Journal of Accounting Research 40(3): 613–630.CrossRefGoogle Scholar
Desai, Mihir A., and Dharmapala, Dhammika. 2006. “Corporate Tax Avoidance and High Powered Incentives.” Journal of Financial Economics 79(1): 145–179.CrossRefGoogle Scholar
Erickson, Merle, Hanlon, Michelle, and Maydew, Edward. 2006. “Is There a Link Between Executive Compensation and Accounting Fraud?” Journal of Accounting Research 44(1): 113–143.CrossRefGoogle Scholar
Financial Accounting Standards Board. 1975. Statement of Financial Accounting Standards No. 5: “Accounting for Contingencies.” (Norwalk, CT: FASB).
Financial Accounting Standards Board. 2006. Financial Interpretation No. 48: “Accounting for Uncertainty in Incone Taxes.” (Norwalk, CT: FASB).
Gergen, Mark P. 2002. “The Logic of Deterrence: Corporate Tax Shelters.” Tax Law Review 55(2): 255–288.Google Scholar
Gleason, Cristi, and Mills, Lillian. 2002. “Materiality and Contingent Tax Liability Reporting.” Accounting Review 77(2): 317–342.CrossRefGoogle Scholar
Gompers, Paul, Ishii, Joy, and Metrick, Andrew. 2003. “Corporate Governance and Equity Prices.” Quarterly Journal of Economics 118(1): 107–155.CrossRefGoogle Scholar
Grubert, Harry. 1999. “Another Look at the Low Taxable Income of Foreign-Controlled Companies in the United States.” In Proceedings of the Ninety-First Annual Confrence on Taxation 1998. (Washington, DC: National Tax Association – Tax Institute of America), pp. 157–175.Google Scholar
Grubert, Harry, and Slemrod, Joel. 1998. “The Effect of Taxes on Investment and Income Shifting to Puerto Rico.” Review of Economics and Statistics 80(3): 365–373.CrossRefGoogle Scholar
Grubert, Harry, Timothy, Goodspeed, and Deborah, Swenson. 1993. “Explaining the Low Taxable Income of Foreign-Controlled Companies in the United States.” In Giovannini, Alberto R., Hubbard, Glenn, and Slemrod, Joel, eds., Studies in International Taxation. (Chicago: University of Chicago Press), pp. 237– 275.Google Scholar
Hanlon, Michelle. 2003. “What Can We Infer about a Firm's Taxable Income from Its Financial Statements?” National Tax Journal 54(4): 831–864.CrossRefGoogle Scholar
Hines, James R. Jr. 2004. “On the Timeliness of Tax Reform.” Journal of Public Economics 88(5): 1043–1059.CrossRefGoogle Scholar
Mills, Lillian. 1998. “Book-Tax Differences and Internal Revenue Service Adjustments.” Journal of Accounting Research 36(2): 343–356.CrossRefGoogle Scholar
Mills, Lillian, and Newberry, Kaye. 2001. “The Influence of Tax and Nontax Costs on Book-Tax Reporting Differences: Public and Private Firms.” Journal of the American Taxation Association 23(1): 1–19.CrossRefGoogle Scholar
Mills, Lillian, and Newberry, Kaye. 2004. “Do Foreign Multinationals' Tax Incentives Influence Their U.S. Income Reporting and Debt Policy?” National Tax Journal 57(1): 89–107.CrossRefGoogle Scholar
Mills, Lillian, and Sansing, Richard. 2000. “Strategic Tax and Financial Reporting Decisions: Theory and Evidence.” Contemporary Accounting Research 17(1): 85–106.CrossRefGoogle Scholar
Mills, Lillian, Erickson, Merle, and Maydew, Edward. 1998. “Investments in Tax Planning.” Journal of the American Taxation Association 20(1): 1–20.Google Scholar
Petrick, Kenneth. A. 2002. “Corporate Profits: Profits Before Tax, Profits Tax Liability, and Dividends.” Methodology Paper. (Washington, DC: U.S. Department of Commerce, Economics and Statistics Administration, Bureau of Economic Analysis).
Phillips, John. 2003. “Corporate Tax Planning Effectiveness: The Role of Compensation-Based Incentives.” Accounting Review 78(July): 847–874.CrossRefGoogle Scholar
Plesko, George. 2003. “Estimates of the Magnitude of Financial and Tax Reporting Conflicts.” Working paper. (Cambridge, MA: Massachusetts Institute of Technology).
Rice, Eric. 1992. “The Corporate Tax Gap: Evidence on Tax Compliance by Small Corporations.” In Slemrod, Joel, ed., Why People Pay Taxes. (Ann Arbor: University of Michigan Press), pp. 125–161.Google Scholar
Slemrod, Joel. 2001. “A General Model of the Behavioral Response to Taxation.” International Tax and Public Finance 8(2): 119–128.CrossRefGoogle Scholar
Slemrod, Joel. 2004. “The Economics of Corporate Tax Selfishness.” National Tax Journal 57(4): 877–899.CrossRefGoogle Scholar
Slemrod, Joel, and Blumenthal, Marsha. 1996. “The Income Tax Compliance Cost of Big Business.” Public Finance Quarterly 24(4): 411–438.CrossRefGoogle Scholar
Slemrod, Joel, Estelle, Dauchy, and Claudia, Martinez. 2005. “Corporate Tax Avoidance and the Effectiveness of Tax Incentives for Investment.” Mimeo. (Ann Arbor: University of Michigan).
Tannenwald, Robert, with Jeannette Hargroves, Rachel Cononi, Pamela Larson, and Michele Mongiello. 1993. “Corporate Tax Disclosure: Good or Bad for the Commonwealth?” Paper prepared for the Massachusetts Special Commission on Business Tax Policy, May 28, Boston.
U.S. Department of the Treasury, Internal Revenue Service. 2004. “Interactive Tax Gap Map.” (Washington, DC: U.S. DOT, National Headquarters, Office of Research).
U.S. General Accounting Office. 1988. “IRS' Tax Gap Studies.” GAO/GGD-88-66BR. (Washington, DC: U.S. GAO).
U.S. General Accounting Office. 1995. “Audit Trends and Taxes Assessed on Large Corporations.” GAO/GGD-96-6. (Washington, DC: U.S. GAO).

Save book to Kindle

To save this book to your Kindle, first ensure [email protected] is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×