Examining IRS Audit Outcomes of Income Mobile Firms

Lisa De Simone, Lillian F. Mills and Bridget Stomberg
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Lisa De Simone: Stanford University
Lillian F. Mills: University of TX
Bridget Stomberg: University of GA

Research Papers from Stanford University, Graduate School of Business

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.

Date: 2016-06
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