Corporate In-House Human Capital Investment in Tax Planning

Abstract

In-house human capital investment in the tax function is a significant input to a firm’s tax planning. Yet, due to lack of data, there is little empirical evidence on whether corporate inhouse tax departments are associated with effective tax planning. We examine this issue using hand-collected data on corporate tax employees in S&P1500 firms. We find that firms with larger in-house tax departments are more effective in tax planning: they have lower tax rates, report lower uncertain tax benefits, and exhibit less volatile tax rates. The results are stronger for firms with in-house tax departments that have a higher proportion of senior or longer-tenured tax professionals. Overall, this paper contributes to the literature by looking inside the “black box” of corporate tax departments.