Events

Dr. Bridget Stomberg
Associate Professor
Kelley School of Business
Indiana University

We interview public company tax executives to better understand how tax authorities affect tax planning. We analyze interviewees’ responses using a multi-theory perspective: models of rational tax compliance and institutional theory. We find that interviewees rarely consider the likelihood of audit when tax planning, which contrasts with a primary assumption of rational tax compliance models. We also identify tax authority characteristics (e.g., low-quality agents) that increase the cost of audits and settlements by requiring additional time and company resources to settle positions. Thus, interviewees offer a more expansive list of tax planning costs than what researchers typically consider. Both in anticipation of and during audits, interviewees take steps to lower these costs. For example, consistent with institutional theory, companies try to ensure tax authorities perceive their actions as proper and appropriate. Our qualitative approach complements the archival and theoretical tax literatures to extend our understanding of corporate tax planning.