Paul L. Caron

Saturday, July 20, 2019

Is Tax Planning Best Done In Private?

Jeffrey L. Hoopes (North Carolina), Patrick Langetieg (Taxpayer Behavior Lab, IRS), Edward L. Maydew (North Carolina) & Michele Mullaney (North Carolina), Is Tax Planning Best Done In Private?:

We investigate whether privately-held firms engage in more tax planning than do publicly-held firms. Private firms are commonly believed to face lower non-tax costs of tax planning relative to public firms, allowing them to engage in more tax planning. However, empirical evidence of U.S. private firm tax planning is limited, primarily because of difficulty in obtaining private firm data. We make use of detailed administrative data from the Internal Revenue Service, which cover virtually all U.S. public and private firms and allow us to examine a variety of specific tax planning measures. Contrary to conventional wisdom, we find no evidence that private corporations engage in more tax planning relative to similar-sized public corporations in the same industry. Moreover, some evidence suggests that private firms actually engage in less tax planning.

These findings are not explained by firm characteristics commonly used to explain tax behavior. These results have important implications for researchers as well as for policymakers and managers.

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