@article{neuman_omer_schmidt_2020, title={Assessing Tax Risk: Practitioner Perspectives}, volume={37}, ISSN={["1911-3846"]}, url={http://dx.doi.org/10.1111/1911-3846.12556}, DOI={10.1111/1911-3846.12556}, abstractNote={ABSTRACTThis study uses insights from tax practitioners and tax authorities to define and develop an estimate of ex ante tax risk that is independent of common tax outcomes studied in prior literature. Validation tests confirm that our tax risk measure (i) represents the predictable and unpredictable uncertainty inherent in the three sources of tax risk (i.e., economic risk, tax law uncertainty, and inaccurate information processing) and (ii) is a construct different from tax avoidance, tax uncertainty, and general business risk. Using our tax risk measure, we address two research questions of interest to academics and practitioners. First, we examine the association between tax risk and long‐run tax avoidance and find a negative association between tax risk and future long‐run cash effective tax rates (ETRs). Second, we consider the extent to which unrecognized tax benefits (UTBs) reflect tax risk, tax avoidance, or financial reporting incentives and demonstrate that our tax risk measure explains a substantial portion of UTBs, incremental and relative to measures of information risk, conditional conservatism, unconditional conservatism, and tax avoidance. Our study offers a measure of tax risk that, consistent with the Scholes‐Wolfson paradigm, reflects the tax risk inherent in all business activities, not just tax avoidance activities; has unique industry effects; and contributes to our understanding of the factors that affect tax planning decisions and result in variation in firms' ETRs. Our findings will help managers and tax practitioners focus on industry‐specific tax risk components, assess risk during tax planning initiatives, exercise caution when engaging in additional risk if ETRs are low, and adapt tax risk strategies to fit specific company needs. We enhance future tax research by improving the definition and measurement of tax risk.}, number={3}, journal={CONTEMPORARY ACCOUNTING RESEARCH}, author={Neuman, Stevanie S. and Omer, Thomas C. and Schmidt, Andrew P.}, year={2020}, month={Sep}, pages={1788–1827} }
 @article{kim_schmidt_wentland_2020, title={Analysts, Taxes, and the Information Environment}, volume={42}, ISSN={["1558-8017"]}, url={https://doi.org/10.2308/atax-52515}, DOI={10.2308/atax-52515}, abstractNote={ABSTRACTThis paper investigates the extent to which analysts incorporate tax-based earnings information into their earnings forecasts relative to other earnings information. We find that analysts' misreaction to tax-based earnings information is distinct from their misreaction to other (nontax) accounting information, on average. We then show that analysts differ in their misestimation of tax and other (nontax) earnings components only when firms have weak information environments; when firms have strong information environments, analysts' forecasts fully incorporate tax-based earnings information and exhibit no difference incorporating tax-based earnings information relative to other accounting information. Our evidence suggests that, on average, forecasting tax-based earnings information is more difficult for analysts relative to forecasting other accounting information. However, access to appropriate information and resources enables analysts to better process tax information. Overall, we contribute to the literature by providing a more complete understanding of the source of analysts' tax-related forecast errors.JEL Classifications: H25; M41; D82; G14.Data Availability: Data are available from the public sources identified in the text.}, number={1}, journal={JOURNAL OF THE AMERICAN TAXATION ASSOCIATION}, publisher={American Accounting Association}, author={Kim, Sangwan and Schmidt, Andrew P. and Wentland, Kelly}, year={2020}, pages={103–131} }
 @article{firm and investor responses to uncertain tax benefit disclosure requirements_2013, url={http://dx.doi.org/10.2308/atax-50458}, DOI={10.2308/atax-50458}, abstractNote={ABSTRACT
               We examine whether proprietary costs affect disclosure quality and how investors react to disclosure quality in a new proprietary cost setting. We apply Verrecchia's (1983) proprietary cost theory to the FIN 48 adoption setting and argue that proprietary costs result from beliefs that the new disclosures could weaken a firm's competitive position when negotiating with tax authorities. FIN 48 is an ideal setting to examine how proprietary costs affect disclosure given the proprietary nature of uncertain tax positions, and the ability to construct objective measures of both proprietary costs and disclosure quality. We construct disclosure quality scores for S&P 1500 firms and offer two empirical findings. First, we find a negative association between proprietary costs and disclosure quality. Second, investors reward firms for low disclosure quality, especially small firms and firms with high proprietary costs. Both findings are consistent with Verrecchia's (1983) theory, and suggest that proprietary costs moderate investor demand for full disclosure.
               JEL Classifications: G14, L15, M41, M44, M45}, journal={The Journal of the American Taxation Association}, year={2013}, month={Oct} }
 @article{bias in quarterly estimates of annual effective tax rates and earnings management_2012, url={http://dx.doi.org/10.2308/atax-10152}, DOI={10.2308/atax-10152}, abstractNote={ABSTRACTWe investigate whether quarterly annual effective tax rate (ETR) estimates are systematically biased in comparison to year-end actual ETRs. We find that estimated annual ETRs in the first, second, and third quarters are systematically higher than year-end ETRs. We then investigate whether firms' overstatement of quarterly ETRs creates slack that is used for earnings management. We find that quarterly ETR increases are more likely to be reversed in subsequent quarters when firms would have missed their analysts' earnings forecast absent the reversal. Finally, we show that in the years subsequent to the passage of the Sarbanes-Oxley Act (SOX), changes in the ETR continue to be associated with earnings management. These results, documenting patterns of annual ETR estimates and revisions, contribute to research about how earnings management is accomplished.JEL Classifications: H25; M41.}, journal={The Journal of the American Taxation Association}, year={2012}, month={Mar} }
 @article{lisowsky_robinson_schmidt_2013, title={Do Publicly Disclosed Tax Reserves Tell Us About Privately Disclosed Tax Shelter Activity?}, volume={51}, ISSN={["0021-8456"]}, url={http://dx.doi.org/10.1111/joar.12003}, DOI={10.1111/joar.12003}, abstractNote={ABSTRACTWe examine whether public disclosures of tax reserves recently made available through Financial Interpretation No. 48 (FIN 48) reflect corporate tax shelter activities. Understanding this relation is important to corporate stakeholders and researchers keen to infer the aggressive nature of a firm's tax positions from its tax reserve accrual. Our study links public disclosures of tax reserves with mandatory private disclosures of tax shelter participation as made to the Internal Revenue Service's Office of Tax Shelter Analysis. We find strong, robust evidence that the tax reserve is positively associated with tax shelters, while other commonly used measures of tax avoidance are not. Based on out‐of‐sample tests, we also show that the reserve is a suitable summary measure for predicting tax shelters. The tax benefits of tax shelters are economically significant, accounting for up to 48% of the aggregate FIN 48 tax reserves in our sample.}, number={3}, journal={JOURNAL OF ACCOUNTING RESEARCH}, author={Lisowsky, Petro and Robinson, Leslie and Schmidt, Andrew}, year={2013}, month={Jun}, pages={583–629} }
 @article{structural change in the research and experimentation tax credit: success or failure?_2011, url={http://dx.doi.org/10.17310/ntj.2011.2.03}, DOI={10.17310/ntj.2011.2.03}, abstractNote={This study examines the availability and incentive effects of the Research and Experimentation tax credit following structural changes in the computation of the credit enacted in the Omnibus Budget Reconciliation Act of 1989 (OBRA89). We find that overall firm eligibility declined after OBRA89, but eligibility increased for firms in high-tech industries, relative to firms in other industries. Dynamic panel regressions indicate that median research and development spending intensity of high-tech (other) firms increased by approximately 15.9 (9.4) percent from 1986-1989 to 1990-1994. For firms that qualified for the credit, our estimates imply approximately $2.08 of additional research and development spending per dollar of revenue forgone.}, journal={National Tax Journal}, year={2011}, month={Jun} }
 @article{iyer_schmidt_seetharaman_2008, title={The effects of standardized tax rates, average tax rates, and the distribution of income on tax progressivity}, volume={27}, ISSN={0278-4254}, url={http://dx.doi.org/10.1016/j.jaccpubpol.2007.11.006}, DOI={10.1016/j.jaccpubpol.2007.11.006}, abstractNote={This study examines the changes in US individual income tax progressivity over the 1986–2003 period using the indexes developed by [Kakwani, N.C., 1976. Measurement of tax progressivity: An international comparison. Economic Journal 87(March), 71–80]. Although progressivity over this time frame has generally been studied in the literature, we provide additional insights by decomposing the changes in index values to account for the effects of concurrent changes in the standardized tax rates, average tax rates, and the income distribution. The decomposition should prove to be particularly useful when different summary indexes lead to conflicting conclusions about progressivity changes, as is often the case. From a policy standpoint, we show that it is the standardized tax rates, a derivative of the legislated tax rates, which need to be monitored and managed to offset the negative progressivity effects of increasing before-tax income inequality.}, number={1}, journal={Journal of Accounting and Public Policy}, publisher={Elsevier BV}, author={Iyer, Govind S. and Schmidt, Andrew and Seetharaman, Ananth}, year={2008}, month={Jan}, pages={88–96} }
 @article{discussion of tax misreporting and avoidance by nonprofit organizations_2007, url={http://dx.doi.org/10.1521/jata.2007.29.1.87}, DOI={10.1521/jata.2007.29.1.87}, journal={Journal of the American Taxation Association}, year={2007}, month={Mar} }
 @article{the persistence, forecasting, and valuation implications of the tax change component of earnings_2006, url={http://dx.doi.org/10.2308/accr.2006.81.3.589}, DOI={10.2308/accr.2006.81.3.589}, abstractNote={I examine whether earnings generated by changes in effective tax rates (the tax change component) persist and aid in forecasting future earnings. In addition, this study investigates to what extent investors incorporate the forecasting implications of the tax change component of earnings into stock prices. I find that there is a positive, significant association between the tax change component of earnings and future earnings. I use the interim reporting requirements of APB No. 28 (APB 1973) and FASB Interpretation No. 18 (FASB 1977) to further decompose the tax change component into an initial and a revised portion based on the first quarter estimate of the annual effective tax rates (ETR). I find that the initial tax change component is more persistent for future earnings than the revised tax change component. These results are consistent with my hypotheses that the initial and revised tax change components have differential persistence and forecasting implications, and dispute the broad notion advanced by prior literature that ETR-related earnings changes are transitory. Results from market tests indicate that the market underweights the forecasting implications of the tax change component and the mispricing appears to be driven by the transitory nature of the revised tax change component.}, journal={The Accounting Review}, year={2006}, month={May} }
 @article{“secondary evasion” and the earned income tax credit_2005, url={http://dx.doi.org/10.2308/jata.2005.27.2.27}, DOI={10.2308/jata.2005.27.2.27}, abstractNote={This paper documents that the earned income of taxpayers claiming the earned income tax credit (EITC) tends to cluster within $800 intervals surrounding the kink points of the EITC benefit distribution. This clustering is especially strong for head of household taxpayers around the kink point of the phase-in range and, to a lesser extent, for married filing joint taxpayers around the kink point of the phase-out range. The results from logit regression models estimated by filing status and kink point location indicate that “secondary evasion” with respect to the EITC is more associated with the characteristics of head of household taxpayers than those of married filing joint taxpayers.}, journal={The Journal of the American Taxation Association}, year={2005}, month={Sep} }