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

See all articles by Shannon Chen

Shannon Chen

University of Arizona - Department of Accounting

Matthew Erickson

Virginia Tech

Michelle Harding

Virginia Tech

Bridget Stomberg

Indiana University - Kelley School of Business

Junwei Xia

Texas A&M University - Department of Accounting; Indiana University - Kelley School of Business

Date Written: January 21, 2021

Abstract

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

Chen, Shannon and Erickson, Matthew and Harding, Michelle and Stomberg, Bridget and Xia, Junwei, Companies’ Initial Estimates and Disclosures of the One-Time Transition Tax Imposed by the Tax Cuts and Jobs Act (January 21, 2021). Available at SSRN: https://ssrn.com/abstract=3355011 or http://dx.doi.org/10.2139/ssrn.3355011

Shannon Chen (Contact Author)

University of Arizona - Department of Accounting ( email )

Tucson, AZ 85721
United States

Matthew Erickson

Virginia Tech ( email )

Pamplin College of Business
Blacksburg, VA 24061
United States

Michelle Harding

Virginia Tech ( email )

Pamplin College of Business
Blacksburg, VA 24061
United States
5402313181 (Phone)

Bridget Stomberg

Indiana University - Kelley School of Business ( email )

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

Junwei Xia

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

430 Wehner
College Station, TX 77843-4353
United States

Indiana University - Kelley School of Business ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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