Lost in Translation: Detecting Tax Shelter Activity in Financial Statements

• Published in: National tax journal Vol. 57; no. 3; pp. 739 - 756
• Main Authors: McGill, Gary A., Outslay, Edmund
• Format: Journal Article
• Language: English
• Published: Chicago National Tax Association 01.09.2004; The University of Chicago Press; University of Chicago Press
• Subjects: Alternative minimum tax; Annual reports; Balance sheets; Business structures; Completed contract method; Congressional committees; Corporate income taxes; Corporate taxes; Corporations; Debates; Deferred income; Deferred income taxes; Deferred taxes; Disclosure; Federal taxes; Financial accounting standards; Financial reporting; Financial statements; Fiscal policy; Income taxes; Net income; Profits; Regression analysis; State income tax; Stockholders; Studies; Tax rates; Tax returns; Tax shelters; Taxable income; Taxation; United States > US
• ISSN: 0028-0283; 1944-7477
• DOI: 10.17310/ntj.2004.3.13

Whether financial statements of public U.S. corporations provide sufficient information to the public to determine a corporation's tax payment to the U.S. Treasury and its involvement in "tax shelter" transactions has been much debated since the well publicized collapses of Enron Corporation and WorldCom, Inc. In this paper, we use specific examples to demonstrate how "income tax note" data can be analyzed to answer these two questions and, in so doing, point out the limitations of using financial accounting information to address tax-related issues. We conclude with suggestions to increase the transparency of a corporation's tax activities through enhanced disclosure.