The effects of income and consumption tax regimes and future tax rate uncertainty on proportional savings and risk-taking

Article Abstract:

The impact of income and consumption tax regimes and future tax rate uncertainty on proportional savings and risk-taking was examined. For the study, undergraduate subjects were asked to report the time at which they like to redeem certificates, which were redeemable for goods and services at two periods, and the fashion by which they liked to distribute unredeemed certificates between safe and risky investment funds. Findings showed that, when future tax rates are guaranteed, an income tax regime diminishes proportional savings and raises proportional risk-taking when compared to a consumption tax regime. In a situation when future tax rates are not certain, the effects become more complicated. However, the results suggest that future tax rate uncertainty has an adverse effect on the savings and risk-taking neutrality of a consumption tax regime while reducing the risk-taking incentive of an income tax regime.

Risk management, Savings, Tax rates, Consumption taxes

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Determinants of the valuation allowance for deferred tax assets under SFAS No. 109

Article Abstract:

The valuation allowance for deferred tax assets, a new provision under Statement of Financial Accounting Standards No 109 (SFAS No 109), varies considerably among firms, consistent with the wide latitude of managers in choosing the allowance. This was gleaned from a study of the determinants of the valuation allowance for deferred tax assets, using data on the deferred tax positions of 200 large firms chosen to have relatively large deferred tax assets. Findings show that managers' expectations about whether their firms will realize deferred tax assets determine the allowance, consistent with SFAS No 109. Specifically, firms with relatively more deferred tax assets have a larger allowance, while firms with higher levels of expected future taxable income have a smaller allowance. Tax credit levels and tax loss carryforwards are the most important determinants of the allowance.

Tax Management, Standards, Tax accounting, Valuation, Financial Accounting Standards Board, Assets (Accounting)

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Determinants of the choice between partial and comprehensive income tax allocation: the case of the domestic international sales corporation

Article Abstract:

A study is conducted in an attempt to identify the motives of managers in choosing between comprehensive and partial income tax allocation associated with indefinite income-tax shelters available to domestic international sales corporations (DISCs). Data are culled from the NAARS database containing the yearly report files of 320 firms with operational DISCs between 1972 and 1974. Results show that managers behave opportunistically to prevent violations of debt covenants, avoid political scrutiny or disguise poor performance, even after the economic expectations and investment opportunity sets of firms have been controlled for. Moreover, findings demonstrate a strong link between the stated positions of external auditors on the tax allocation issue and the method choice of their client firms.

Taxation, Tax auditing, Tax audits, Tax shelters, Domestic international sales corporations

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