Tax Planning Gone Awry: Do Tax-Motivated Firms Experience Worse Tax Outcomes from Losses Compared to Other Firms?

47 Pages Posted: 16 Dec 2018

See all articles by Scott Dyreng

Scott Dyreng

Duke University - Accounting

Christina Lewellen

North Carolina State University - Department of Accounting

Bradley P. Lindsey

Utah State University - School of Accountancy

Date Written: October 25, 2018

Abstract

We study the tax outcomes associated with losses in publicly traded U.S. multinational firms. We find that tax planning using tax haven operations, which is commonly associated with relatively favorable tax outcomes for profitable firms, is associated with poor tax outcomes from losses compared to multinational firms that do not tax plan with tax haven operations. Specifically, we find that firms with tax haven operations receive significantly lower tax loss benefits in terms of both tax loss carrybacks and tax loss carryforwards. We demonstrate the striking asymmetry of the tax U.S. system, in which U.S. multinational firms are often unable to fully realize tax benefits for their losses despite provisions for tax loss carrybacks and carryforwards, and show that tax planning exacerbates this asymmetry. In addition, we note that our findings highlight a potential cost of tax avoidance: lower tax benefits from losses. We also contribute to the tax avoidance literature by providing a research design framework for studying tax outcomes during loss years.

Keywords: loss firms, tax avoidance, tax loss carrybacks

JEL Classification: M41, H20, H26

Suggested Citation

Dyreng, Scott and Lewellen, Christina and Lindsey, Bradley P., Tax Planning Gone Awry: Do Tax-Motivated Firms Experience Worse Tax Outcomes from Losses Compared to Other Firms? (October 25, 2018). Available at SSRN: https://ssrn.com/abstract=3291705 or http://dx.doi.org/10.2139/ssrn.3291705

Scott Dyreng

Duke University - Accounting ( email )

Box 90120, Fuqua School of Business
Durham, NC 27708-0120
United States

Christina Lewellen (Contact Author)

North Carolina State University - Department of Accounting ( email )

Raleigh, NC 27695-8113
United States

Bradley P. Lindsey

Utah State University - School of Accountancy ( email )

Huntsman School of Business
3540 Old Main Hill
Logan, UT UT 84322-3540
United States
435.797.4126 (Phone)

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