Companies’ Initial Estimates and Disclosures of the One-Time Transition Tax Imposed by the Tax Cuts and Jobs Act
49 Pages Posted: 1 Apr 2019 Last revised: 23 Jan 2021
Date Written: January 21, 2021
We use the Tax Cuts and Jobs Act as a setting to offer new insights into companies’ tax accruals and disclosures. Specifically, we examine the properties of companies’ estimates of the transition tax on foreign earnings and related voluntary disclosures. We exploit the one-year measurement period during which companies could adjust their initial transition tax estimates. We find companies with political access record smaller measurement period adjustments and provide more extensive voluntary disclosures. Companies whose auditors had more capacity at year-end record smaller adjustments. However, we find no difference in adjustments or disclosure for companies that previously disclosed an estimated tax on foreign earnings compared to companies that claimed the calculation was impracticable. Finally, we find companies with incentives to manage external perceptions that they pay their “fair share” of tax are more likely to overstate their initial transition tax estimates.
Keywords: Accounting for Income Taxes; Tax Cuts and Jobs Act; Disclosure; Bias
JEL Classification: H2, M41
Suggested Citation: Suggested Citation