Trends in the Sources of Permanent and Temporary Book-Tax Differences During the Schedule M-3 Era

Abstract

We use a time-series of macro-economic Schedule M-3 tax return data from Subchapter C corporations to provide descriptive evidence on specific sources of permanent and temporary book-tax differences from 2004 to 2013. Our primary findings are that 1) total book-tax differences increase, fueled by increases in both positive and negative temporary and permanent book-tax differences; 2) firms’ operations and financing, as well as economic incentives, explain a substantial amount of book-tax differences; 3) firms report a substantial but decreasing amount of book-tax differences in the “other” categories throughout the sample period; 4) the frequency and magnitude of reportable transactions decreases significantly; and 5) foreign operations continue to provide an increasing source of earnings for firms, while the amount repatriated and subjected to U.S. income taxes is likewise growing. However, the relative amount of foreign earnings repatriated decreases substantially after 2009.