 |
American Taxation Association |
|
American Taxation Association |
JATA - Spring 2007Volume 29, No. 1 Incremental Financing Decisions and Time-Series Variation in Personal Taxes on Equity Income Determinants of the Choice between Roth and Deductible IRAs Tax-Motivated Expense Shifting by Tax-Exempt Associations Tax Misreporting and Avoidance by Nonprofit Organizations An Investigation of Why Taxpayers Prefer Refunds: A Theory of Planned Behavior Approach Incremental Financing Decisions and Time-Series Variation in Personal Taxes on Equity Income Dan S. Dhaliwal, Merle M. Erickson and Linda K. Krull Abstract This study investigates whether changes in personal tax rates on dividends and capital gains affect firms' incremental financing decisions. The evidence in this study suggests that following the 1997 and 2003 Tax Acts, which decreased tax rates on equity income, firms are less likely to issue debt relative to equity, consistent with the hypothesis that decreases in tax rates on equity income decrease the tax benefits of debt. Further, the magnitude of this effect varies predictably with dividend yield, a proxy for the proportion of equity income taxed at capital gain tax rates versus dividend tax rates. The magnitude of this effect is also decreasing in institutional ownership, a proxy for the probability that the marginal investor is tax exempt. This paper contributes to the literature that examines the effect of taxes on corporate financing decisions. Top Determinants of the Choice between Roth and Deductible IRAs Warren B. Hrung Abstract This study examines tax and nontax determinants of the choice between Roth and deductible Individual Retirement Accounts (IRAs). I find evidence that higher current tax rates relative to average tax rates are positively, but modestly, related to the probability that a taxpayer will contribute to a deductible IRA rather than a Roth IRA. I also find that taxpayers with greater liquidity are more likely to choose a Roth IRA, which is the option with a higher effective contribution limit. The results relate to the question of whether taxpayers behave in a tax-efficient manner and the behavioral response to statutory tax rate changes. Top Tax-Motivated Expense Shifting by Tax-Exempt Associations Mary Ann Hofmann Abstract Tax-exempt organizations are subject to the Unrelated Business Income Tax (UBIT) on the profits of business activities unrelated to their exempt mission. This study extends recent research on the expense allocations of charitable nonprofit organizations by examining a group of noncharitable nonprofits—primarily trade, labor, and agricultural associations—that differ from charitable nonprofits on a number of dimensions. The paper tests for tax-motivated expense shifting by associations. Data is obtained from the IRS Statistics of Income Division, and is supplemented by data requested from associations. Reported unrelated business expenses are compared to those predicted by a regression model to estimate expense shifting. Associations are estimated to shift approximately 20–21 percent of the expenses reported on their UBIT returns. Further analysis calls into question the validity of the estimation model, and suggests that expense shifting may be understated in this and previous studies. Top Tax Misreporting and Avoidance by Nonprofit Organizations Thomas C. Omer and Robert J. Yetman Abstract Using nonprofit income tax returns, we find that 19 percent of our pooled sample misreported their taxable income by overstating their taxable expenses by an average of 30 percent. Using this measure of tax misreporting as well as various measures of tax avoidance we find that nonprofit tax misreporting and avoidance are increasing in tax rates, tax return complexity, and accounting system flexibility, and decreasing in detection risk. The economic magnitudes of our results suggest that relatively modest changes in these variables can result in large changes in nonprofit tax avoidance behavior. Top An Investigation of Why Taxpayers Prefer Refunds: A Theory of Planned Behavior Approach Donna D. Bobek, Richard C. Hatfield and Kristin Wentzel Abstract Approximately 80 percent of individual tax returns filed with the IRS result in refunds. According to 2003 Statistics of Income data, these refunds average approximately $2,400. In effect, over-withholding of federal income taxes results in interest-free loans to the government, creating opportunity costs to taxpayers equal to the amount of forgone interest income. This study examines the underlying reasons why taxpayers tend to make tax payments that ultimately result in a tax refund. We draw on Ajzen's (1991) Theory of Planned Behavior to comprehensively model this phenomenon. Overall, the results from 140 respondents show taxpayers' attitudes (e.g., desire to avoid uncertainty or to avoid any chance of underpayment) and subjective norms (e.g., perceptions of friends' likely advice) affect their withholding decisions. Although respondents understand that they are forgoing investment income and perceive that they could change their withholding with relative ease, they are still hesitant to reduce their overpayment of taxes. It appears that taxpayers perceive emotional benefits (e.g., "enjoyment" of refund check, reduced anxiety) from over-withholding that equal or offset the financial costs. Top |