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The Impact of Managing the Tax Function as a Profit Center on the Book-Tax Gap
John R Robinson, The University of Texas at Austin
Stephanie A Sikes, The University of Texas at Austin
Connie D Weaver, Texas A & M University
ABSTRACT. Regulators and researchers have speculated about the causes of the growing difference between corporate book and taxable income. We investigate one potential source of the book-tax gap, the designation of the corporate tax function as a profit center. We use confidential 1999 survey data for 213 firms to test two conjectures. First, after controlling for profitability, size, financial reporting aggressiveness, and potential endogeneity, we find that the profit center designation is associated with relatively larger book-tax gaps. Second, we predict profit center designations for sample firms from 2000 through 2005 to investigate whether these predictions are associated with changes in the book-tax gap.
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