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Lost in Translation: Detecting Tax Shelter Activity in Financial Statements

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  • McGill, Gary A.
  • Outslay, Edmund
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    Abstract

    Whether financial statements of public U.S. corporations provide sufficient information to the public to determine a corporation's tax payment to the U.S. Treasury and its involvement in "tax shelter" transactions has been much debated since the well publicized collapses of Enron Corporation and WorldCom, Inc. In this paper, we use specific examples to demonstrate how "income tax note" data can be analyzed to answer these two questions and, in so doing, point out the limitations of using financial accounting information to address tax–related issues. We conclude with suggestions to increase the transparency of a corporation's tax activities through enhanced disclosure.

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    Bibliographic Info

    Article provided by National Tax Association in its journal National Tax Journal.

    Volume (Year): 57 (2004)
    Issue (Month): 3 (September)
    Pages: 739-56

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    Handle: RePEc:ntj:journl:v:57:y:2004:i:3:p:739-56

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    Cited by:
    1. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    2. Graham, John R. & Tucker, Alan L., 2006. "Tax shelters and corporate debt policy," Journal of Financial Economics, Elsevier, vol. 81(3), pages 563-594, September.
    3. Armstrong, Christopher S. & Blouin, Jennifer L. & Larcker, David F., 2012. "The incentives for tax planning," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 391-411.
    4. Tang, Tanya & Firth, Michael, 2011. "Can book-tax differences capture earnings management and tax Management? Empirical evidence from China," The International Journal of Accounting, Elsevier, vol. 46(2), pages 175-204, June.
    5. George A. Plesko, 2007. "Estimates of the Magnitude of Financial and Tax Reporting Conflicts," NBER Working Papers 13295, National Bureau of Economic Research, Inc.
    6. Michelle Hanlon & Terry Shevlin, 2005. "Bank-Tax Conformity for Corporate Income: An Introduction to the Issues," NBER Working Papers 11067, National Bureau of Economic Research, Inc.

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