Keywords

adversarial disclosure, tax enforcement, uncertain tax positions, tax footnote

Abstract

This study examines companies’ voluntary disclosures of an adversarial stance toward tax enforcement in income tax footnotes, where companies express disagreement with tax authorities or a willingness to litigate unresolved audit issues. We find that larger companies, industry leaders, and companies in industries with high litigation risk are more likely to make adversarial disclosures toward tax enforcement, and companies’ tax planning activities do not solely determine such disclosures. We examine the implications of adversarial disclosures on future tax audit outcomes and find that future settlement outcomes are more unfavorable for companies with such disclosures relative to those without. Finally, our supplemental analysis suggests negative capital market consequences and increased IRS scrutiny following adversarial disclosures. Our study documents the determinants and implications of a unique aspect of companies’ tax controversy management and sheds light on the interactions between taxpayers and the tax authority during the tax enforcement process.

Original Publication Citation

Judd, Hannah W. and McGuire, Sean T. and Weaver, Connie D. and Xia, Junwei, Check Your Attitude: An Examination of Companies' Adversarial Disclosures about Tax Enforcement (January 11, 2023). http://dx.doi.org/10.2139/ssrn.4322643

Document Type

Working Paper

Publication Date

2023

Publisher

SSRN

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Assistant Professor

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