Danielle Green investigates book-tax difference trends

Assistant Professor Danielle Green’s article “The relation between book and taxable income since the introduction of the schedule M-3” will be published in the December 2016 volume of National Tax Journal. Since the end of the 1990s, tax-shelter activity and whether there are increasing levels of tax avoidance have remained topics of discussion among policymakers and of research among academics. Book-tax differences (BTD), while not the sole measure of tax-avoidance activities, remain an important and often-cited benchmark when studying corporate tax behavior. This article investigates BTD trends in the United States since 2004, after introduction of Schedule M-3, to examine BTDs over time and across reporting regimes. Through examination of the trends in aggregate BTDs and factors affecting BTDs, this article finds that despite the changes in the reporting environment, aggregate BTDs have continued to rise since the release of Schedule M-3, but that the relative magnitude of these differences, as a share of book income, remains largely unchanged. To the extent that BTDs reflect tax-sheltering behavior, this article suggests that such activity has remained relatively stable throughout this period of increased disclosure. This article also exposes that traditional economic and accounting variables appear to explain less of the variation in BTDs over time.