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Bridging the Reporting Gap: A Proposal for More Informative Reconciling of Book and Tax Income

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  • Mills, Lillian F.
  • Plesko, George A.

Abstract

In this paper, we review the history and purpose of the corporation income tax return’s Schedule M–1 in light of recent attention to corporate reporting issues. Although the traditional role for the schedule has been to assist the audit process, the reconciliation of book to tax accounting numbers also provides information useful to tax analysts. We find the existing tax return Schedule M–1, largely unchanged since its introduction in 1963, provides insufficient detail for complex reconciliation issues. We propose revisions to the M–1 to achieve better reconciliation, and discuss the advantages and disadvantages of public disclosure of such data.

Suggested Citation

  • Mills, Lillian F. & Plesko, George A., 2003. "Bridging the Reporting Gap: A Proposal for More Informative Reconciling of Book and Tax Income," National Tax Journal, National Tax Association;National Tax Journal, vol. 56(4), pages 865-893, December.
    • Handle: RePEc:ntj:journl:v:56:y:2003:i:4:p:865-93
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    References listed on IDEAS

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    1. Plesko, George A., 2003. "An evaluation of alternative measures of corporate tax rates," Journal of Accounting and Economics, Elsevier, vol. 35(2), pages 201-226, June.
    2. John R. Graham & Mark H. Lang & Douglas A. Shackelford, 2004. "Employee Stock Options, Corporate Taxes, and Debt Policy," Journal of Finance, American Finance Association, vol. 59(4), pages 1585-1618, August.
    3. Erickson, Merle & Wang, Shiing-wu, 2000. "The effect of transaction structure on price: Evidence from subsidiary sales," Journal of Accounting and Economics, Elsevier, vol. 30(1), pages 59-97, August.
    4. Mihir A. Desai, 2002. "The Corporate Profit Base, Tax Sheltering Activity, and the Changing Nature of Employee Compensation," NBER Working Papers 8866, National Bureau of Economic Research, Inc.
    5. Lenter, David & Slemrod, Joel & Shackelford, Douglas A., 2003. "Public Disclosure of Corporate Tax Return Information: Accounting, Economics, and Legal Perspectives," National Tax Journal, National Tax Association;National Tax Journal, vol. 56(4), pages 803-830, December.
    6. repec:bla:joares:v:34:y:1996:i:1:p:23-43 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Maurizio Bovi, 2005. "Book-Tax Gap. An Income Horse Race," Public Economics 0506009, EconWPA.
    2. George M. von Furstenberg & Ulf von Kalckreuth, 2007. "Dependence on External Finance by Manufacturing Sector: Examining the Measure and its Properties," Economie Internationale, CEPII research center, issue 111, pages 55-80.
    3. Hope, Ole-Kristian & Ma, Mark (Shuai) & Thomas, Wayne B., 2013. "Tax avoidance and geographic earnings disclosure," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 170-189.
    4. repec:eee:jaecon:v:63:y:2017:i:2:p:428-453 is not listed on IDEAS
    5. Graham, John R. & Mills, Lillian F., 2008. "Using tax return data to simulate corporate marginal tax rates," Journal of Accounting and Economics, Elsevier, vol. 46(2-3), pages 366-388, December.
    6. Maurizio Bovi, 2007. "National accounts, fiscal rules and fiscal policy. Mind the hidden gaps," ISAE Working Papers 76, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    7. Michelle Hanlon & Terry Shevlin, 2005. "Book-Tax Conformity for Corporate Income: An Introduction to the Issues," NBER Chapters,in: Tax Policy and the Economy, Volume 19, pages 101-134 National Bureau of Economic Research, Inc.
    8. Kager, Rebekka & Knirsch, Deborah & Niemann, Rainer, 2008. "Steuerliche Wertansätze als zusätzliche Information für unternehmerische Entscheidungen? Eine Auswertung von IFRS-Abschlüssen der deutschen DAX-30- und der österreichischen ATX-Unternehmen," arqus Discussion Papers in Quantitative Tax Research 50, arqus - Arbeitskreis Quantitative Steuerlehre.
    9. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    10. 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.
    11. Bokulic, Caitlin & Henry, Erin & Plesko, George A., 2012. "Reconciling Global Financial Reporting With Domestic Taxation," National Tax Journal, National Tax Association, vol. 65(4), pages 933-959, December.
    12. Mills, Lillian F., 2006. "Five Things Economists and Lawyers Can Learn From Accountants: An Illustration Using the Domestic Production Activities Deduction," National Tax Journal, National Tax Association, vol. 59(3), pages 585-597, September.
    13. George A. Plesko, 2007. "Estimates of the Magnitude of Financial and Tax Reporting Conflicts," NBER Working Papers 13295, National Bureau of Economic Research, Inc.
    14. Poterba, James M. & Rao, Nirupama S. & Seidman, Jeri K., 2011. "Deferred Tax Positions and Incentives for Corporate Behavior Around Corporate Tax Changes," National Tax Journal, National Tax Association, vol. 64(1), pages 27-57, March.
    15. Polito, Vito, 2011. "Deferred Taxation and Effective Tax Rates on Income from Capital in the United States, 2000-2010," Cardiff Economics Working Papers E2011/14, Cardiff University, Cardiff Business School, Economics Section.
    16. Inès Bouaziz Daoud & Mohamed Ali Omri, 2011. "Divergences comptabilité - fiscalité, gestion fiscale et gestion des résultats en Tunisie : les nouveaux défis," Post-Print hal-00646800, HAL.
    17. Barton, Jan & Waymire, Gregory, 2004. "Investor protection under unregulated financial reporting," Journal of Accounting and Economics, Elsevier, vol. 38(1), pages 65-116, December.
    18. Hanlon, Michelle & Laplante, Stacie Kelley & Shevlin, Terry, 2005. "Evidence for the Possible Information Loss of Conforming Book Income and Taxable Income," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 407-442, October.
    19. Schanz, Deborah & Schanz, Sebastian, 2009. "Zur Unmaßgeblichkeit der Maßgeblichkeit: Divergieren oder konvergieren Handels- und Steuerbilanz?," arqus Discussion Papers in Quantitative Tax Research 78, arqus - Arbeitskreis Quantitative Steuerlehre.
    20. repec:eee:spacre:v:17:y:2014:i:1:p:17-29 is not listed on IDEAS
    21. Chan, K. Hung & Lin, Kenny Z. & Mo, Phyllis L.L., 2010. "Will a departure from tax-based accounting encourage tax noncompliance? Archival evidence from a transition economy," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 58-73, May.

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