Is Silence Golden? An Investigation of Zero Unrecognized Tax Benefit Firms

ABSTRACT We find over 31 percent of U.S. firms report a zero ending balance for their unrecognized tax benefits (UTBs). We refer to these firms as zero UTB firms and explore explanations for their prevalence. We find zero UTB firms are less complex than positive UTB firms. Specifically, they are smaller, less profitable, have less R&D and foreign earnings, and fewer operating segments and XBRL tags. We also find some evidence that these firms have less efficient tax departments. When splitting zero UTB firms by tax haven activity, we find that those with haven operations are more aggressive in their financial reporting than haven firms with positive UTBs. We also find that zero UTB firms both with and without tax haven operations are subject to less IRS scrutiny than positive UTB firms. Overall, although zero UTB firms are generally less complex, our results suggest that a subset may warrant further scrutiny. JEL Classifications: H25; H26; H32; M41; M48.

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Publication Details

Journal
Journal of the American Taxation Association
Published
2024-12-01
DOI
https://doi.org/10.2308/jata-2023-006
Citations
1
Primary Topic
Corporate Taxation and Avoidance
Type
article
Field-Weighted Citation Impact
0.95
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article

Is Silence Golden? An Investigation of Zero Unrecognized Tax Benefit Firms

Kaishu Wu, Ryan J. Wilson, Kimberly S. Krieg
1 citations
Journal of the American Taxation Association
Corporate Taxation and Avoidance
0.95
article

Is Silence Golden? An Investigation of Zero Unrecognized Tax Benefit Firms

Kaishu Wu, Ryan J. Wilson, Kimberly S. Krieg
article en
1 citations

Abstract

ABSTRACT We find over 31 percent of U.S. firms report a zero ending balance for their unrecognized tax benefits (UTBs). We refer to these firms as zero UTB firms and explore explanations for their prevalence. We find zero UTB firms are less complex than positive UTB firms. Specifically, they are smaller, less profitable, have less R&D and foreign earnings, and fewer operating segments and XBRL tags. We also find some evidence that these firms have less efficient tax departments. When splitting zero UTB firms by tax haven activity, we find that those with haven operations are more aggressive in their financial reporting than haven firms with positive UTBs. We also find that zero UTB firms both with and without tax haven operations are subject to less IRS scrutiny than positive UTB firms. Overall, although zero UTB firms are generally less complex, our results suggest that a subset may warrant further scrutiny. JEL Classifications: H25; H26; H32; M41; M48.

Journal of the American Taxation Association
University of Iowa (US), University of Waterloo (CA), University of San Diego (US)
Openalex Percentile: Top 17%
Corporate Taxation and Avoidance
0.95
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