Financial Accounting Measures of Tax Reporting Aggressiveness

Abstract

This study examines a setting in which a tax reporting decision is delegated to a firm’'s tax manager. Using financial accounting measures of tax expense to evaluate the tax manager allows the fi rm to efficiently attain the level of tax avoidance it prefers, despite the fact that the consequences of the tax reporting decision will occur in the future. The study also examines how well two accounting measures of tax aggressiveness -- –cash taxes paid and the unrecognized tax bene fit -- distinguish between conservative and aggressive fi rms.