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Examining IRS Audit Outcomes of Income Mobile Firms

Author

Listed:
  • De Simone, Lisa

    (Stanford University)

  • Mills, Lillian F.

    (University of TX)

  • Stomberg, Bridget

    (University of GA)

Abstract

We develop and validate a firm-level measure of cross-jurisdictional income shifting and then test whether "income mobile" firms incur more negative IRS audit outcomes. Results suggest income mobile firms are no more likely to be audited than other multinational entities (MNEs), but they are more likely to receive a proposed deficiency from the IRS and to have a greater proportion of their originally claimed tax benefits challenged upon audit. At the conclusion of the exam, appeals and counsel progress, income mobile firms lose a greater portion of their claimed tax savings. However, because income mobile firms are better able to exploit opportunities to minimize U.S. taxes, their total U.S. taxes paid as a percentage of pre-tax income remains lower than other MNEs despite their more negative audit outcomes. Our contribution is using confidential IRS tax return data to inform the debate over U.S. tax outcomes for income mobile firms.

Suggested Citation

  • De Simone, Lisa & Mills, Lillian F. & Stomberg, Bridget, 2016. "Examining IRS Audit Outcomes of Income Mobile Firms," Research Papers 3447, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3447
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    Cited by:

    1. Borkowski, Susan C. & Gaffney, Mary Anne, 2021. "FIN 48 and the tax aggressive behaviors of transnational corporations: A decade later," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 42(C).
    2. Daniel Klein & Christopher A. Ludwig & Christoph Spengel, 2019. "Ring-fencing Digital Corporations: Investor Reaction to the European Commission’s Digital Tax Proposals," EconPol Working Paper 36, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. Eulaiwi, Baban & Alghamdi, Fatmah Saeed & Al-Hadi, Ahmed & Duong, Lien & Taylor, Grantley, 2024. "U.S. multinational corporations' income shifting incentives and share repurchases: Evidence across differential taxation systems," Global Finance Journal, Elsevier, vol. 60(C).
    4. De Simone, Lisa & Piotroski, Joseph D. & Tomy, Rimmy E., 2017. "Repatriation Taxes and Foreign Cash Holdings: The Impact of Anticipated Tax Policy," Research Papers 3507, Stanford University, Graduate School of Business.

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