LAKEWOOD
RANCH, Fla., May 22, 2024
/PRNewswire/ -- A new study published by the American Accounting
Association finds that companies take IRS budgets into
consideration when developing their year-to-year tax strategies and
take more aggressive tax positions when IRS budgets are
smaller.
"We wanted to explore what external factors affect a company's
decisions regarding tax avoidance," says Danielle Stanley, coauthor of the study and an
assistant professor of accounting at Coastal
Carolina University. "Specifically, we wanted to see if
companies were more comfortable with aggressive tax strategies when
they think the IRS has fewer resources to engage in audits."
"Previous work looked at corporate tax decisions in light of
historical audit rates, asking whether recent audit rates
influenced tax strategy," says Hannah Smith
Antinozzi, coauthor of the study and an assistant professor
of accountancy at the University of
Memphis. "We took a different approach and looked at
corporate decisions in the context of publicly-available data on
the IRS's forecast budget."
For the study, researchers looked at data from 10,992 companies
between the years of 2011 and 2021. To assess changes in how
aggressive each company was being with its tax positions, the
researchers looked at changes in each company's effective tax rates
and uncertain tax benefits. The researchers collected data on IRS
budgets from the Treasury Department.
The research team then used statistical tools to account for
confounding variables, allowing them to better identify any
correlation between corporate tax positions and the projected IRS
budget for the following year.
"We looked at IRS budget projections for the next year, because
that is when the IRS could begin conducting audits on this year's
tax filings," says Stanley.
"Our biggest finding was that companies appear to take IRS
budgets into consideration and take more aggressive tax positions
when budgets go down," says Stanley. "That's over and above any
correlation to historical audit data."
"In other words, our findings suggest companies pay more
attention to the IRS's projected budget than they do to recent
audit rates when making decisions about how aggressive to be with
their tax strategy," says Antinozzi.
"One takeaway message here is that cuts to IRS budgets seem to
have the unintended consequence of encouraging aggressive tax
behavior," says Antinozzi.
"And from a practical standpoint, our study suggests auditors
should be aware that firms are more likely to make dicey tax
decisions when IRS budgets are down," says Stanley. "That makes it
particularly important for auditors to allocate their available
resources in ways that will identify tax fraud."
The paper, "IRS Audit Detection Risk and Firm Tax Behavior: Can
Tax Fraud be Deterred by Increasing IRS Budgets?", is
published in the Journal of Forensic Accounting
Research.
The American Accounting Association (www.aaahq.org) is
the largest community of accountants in academia. Founded in 1916,
we have a rich and reputable history built on leading-edge research
and publications. The diversity of our membership creates a fertile
environment for collaboration and innovation. Collectively, we
shape the future of accounting through teaching, research and a
powerful network, ensuring our position as thought leaders in
accounting.
Media Contacts:
Danielle Stanley,
378044@email4pr.com
Hannah Smith Antinozzi,
378044@email4pr.com
David Twiddy, 378044@email4pr.com,
941-556-4115
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SOURCE American Accounting Association