American Taxation Association

JATA abstracts - Fall 2003

JATA - Fall 2003

Volume 25, No. 2

How Well Do Compustat NOL Data Identify Firms with U.S. Tax Return Loss Carryovers?
Lillian F. Mills, Kaye J. Newberry and Garth F. Novack

Near Zero Taxable Income Reporting by Nonprofit Organizations
Thomas C. Omer and Robert J. Yetman

An International Investigation of the Influence of Dividend Taxation on Research and Development Tax Credits
Deborah W. Thomas, Tracy S. Manly and Craig T. Schulman


How Well Do Compustat NOL Data Identify Firms with U.S. Tax Return Loss Carryovers?

Lillian F. Mills, Kaye J. Newberry and Garth F. Novack

Abstract

Although Compustat net operating loss (NOL) data are an underlying component of most proxies of corporate tax incentives, there is little empirical evidence regarding how Compustat NOLs relate to firms' tax-loss positions per their U.S. tax returns. We use confidential U.S. tax return data for a sample of large corporations over the period 1981–1995 to compute firms' U.S. tax-loss carryovers and construct a matched sample with Compustat data. We then evaluate how well Compustat NOL data works as an indicator of firms' U.S. tax-loss positions, identify sources of misclassification errors, and investigate the effectiveness of using additional Compustat data screens. We find that screening for U.S. current income tax or total pretax income successfully reduces certain types of misclassification errors. We conclude that care should be used in constructing U.S. tax-loss proxies, particularly when the research setting involves firms with foreign operations or corporate acquisitions activity.  Top


Near Zero Taxable Income Reporting by Nonprofit Organizations

Thomas C. Omer and Robert J. Yetman

Abstract

In this paper, we provide evidence consistent with nonprofit organizations managing their taxable income to near zero by examining the cross-sectional distribution of taxable income as reported on IRS form 990-T. We find an unusually large number of nonprofits that report taxable income profitability in the range of [–0.01, 0.01). Further analysis finds that various frictions and restrictions impede nonprofits from reporting near zero taxable income. We find that the likelihood that a nonprofit reports near zero taxable income is decreasing in size and when the taxable activity has a tax-exempt counterpart. We also find that charitable nonprofits are less likely to report near zero taxable income than are hospitals. Finally, we find that the use of a paid CPA preparer is associated with a higher probability of reporting near zero taxable income.  Top


An International Investigation of the Influence of Dividend Taxation on Research and Development Tax Credits

Deborah W. Thomas, Tracy S. Manly and Craig T. Schulman

Abstract

This paper examines the ability of the research and development (R&D) tax credit to stimulate corporate R&D investment by considering it in the context of different forms of taxation for dividends. Many countries use an imputation system to eliminate the double tax on dividends found in a classical system. Using an international sample, we compare firms from different tax regimes that invest in R&D. The tax regime of interest offers both an R&D tax credit and an imputation credit for dividends. We develop a system of equations to estimate the companies' R&D expense and dividend payout. The primary result from the estimation is that firms operating in a tax regime that encourages both R&D and increased dividend payments spend less on R&D as they pay more in dividends. This inverse relation is greater than the inverse relation found between dividends and R&D in the full sample. We conclude that the effect of an R&D tax credit on private R&D spending depends on both the firms' commitment to dividend payments and the tax treatment of dividends.  Top

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