Distilling the Reserve for Uncertain Tax Positions: The Revealing Case of Black Liquor

Posted: 11 Feb 2011 Last revised: 13 Oct 2020

See all articles by Lisa De Simone

Lisa De Simone

University of Texas at Austin

John R. Robinson

Texas A&M University - Department of Accounting; Texas A&M University

Bridget Stomberg

Indiana University - Kelley School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: February 10, 2011

Abstract

We examine the extent to which tax accruals, specifically the reserve for uncertain tax benefits, influence common empirical measures of income tax avoidance. We analyze the financial statement disclosures for 19 paper companies that received a total of $6.4 billion in direct government subsidies structured as refundable excise taxes during 2009. Each of these companies included the refunds in financial income in 2009, but fourteen of these firms excluded all or part of the refunds from taxable income. Despite the unprecedented nature of the exclusion, we find significant variation in the tax accruals meant to represent uncertain tax positions. Our evidence suggests the subjectivity of management’s decision to establish a reserve for uncertain tax positions can result in biased measures of tax avoidance constructed from financial reports.

Keywords: Effective tax rate, uncertain tax positions, tax avoidance

JEL Classification: M41, H25

Suggested Citation

De Simone, Lisa and Robinson, John R. and Stomberg, Bridget, Distilling the Reserve for Uncertain Tax Positions: The Revealing Case of Black Liquor (February 10, 2011). 2011 American Taxation Association Midyear Meeting Paper: Research-in-Process Session, Available at SSRN: https://ssrn.com/abstract=1759987 or http://dx.doi.org/10.2139/ssrn.1759987

Lisa De Simone (Contact Author)

University of Texas at Austin ( email )

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HOME PAGE: http://www.lisa-desimone.com

John R. Robinson

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
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Texas A&M University ( email )

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Mays School of Business
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Bridget Stomberg

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

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