SYNOPSIS U.S. corporations have the ability to avoid paying domestic taxes to achieve an effective tax rate that is much lower than the statutory federal tax rate. This study evaluates the extent that individuals differ in their attitudes about the ethicality of corporations avoiding domestic taxes to achieve low effective tax rates. We also examine the extent to which the specific tax avoidance method used by corporations to access a low effective tax rate affects perceived ethicality. Eighty-two members of the general public and 112 accountants participated in an experiment with two participant groups and three tax avoidance methods manipulated randomly between subjects. The results indicate a significant interaction between participant group and tax avoidance method, with the general public considering shifting profits out of the country to achieve a low effective tax rate to be highly unethical, while the accountants find tax avoidance from carrying forward prior operating losses to be highly ethical. Further, mediation analysis indicates that perceived fairness and legality mediate the effects of participant type on perceived ethicality. Mediation analysis also reveals that sense of fairness and legality mediate the link between tax avoidance method and perceived ethicality. We conclude by considering the study's policy, practice, and research implications.

SYNOPSIS Despite a traditional advocacy role, tax professionals face growing pressure to help manage the tax fraud problem. However, the authoritative tax literature lacks explicit guidance in the area, motivating questions about the extent tax professionals perceive fraud detection responsibility. This study evaluates 236 tax professionals' perceived responsibility for tax fraud detection, and the extent that tax engagement type (planning versus compliance) and audit client status (audit client versus not an audit client) affect responsibility. We also use the triangle model of responsibility to test the extent that task clarity, professional obligation, and personal control mediate the effects of engagement type and audit client status on detection responsibility. The results indicate moderate and varied perceived detection responsibility among the participants. We also find that reported detection responsibility varies across tax engagement type and audit client status. As expected, tax professionals report higher detection responsibility in a tax compliance engagement and when the tax client is also an audit client. Subsequent path analysis results show that the triangle model components are positively related to detection responsibility, and that professional obligation and personal control mediate the effects of engagement type and audit client status on detection responsibility.

We examine changes in the average mutual fund's investments following the Jobs and Growth Tax Relief Reconciliation Act of 2003 ͑JGTRR͒. The JGTRR decreased the tax penalty on dividend and capital gains income. We hypothesize that mutual fund managers will respond to the investment preferences of the underlying shareholders and increase their ownership of dividend-paying firms. We present evidence supporting the hypothesis that mutual fund managers increased their ownership of dividend-paying firms following the JGTRR. However, we do not find evidence that the investment managers of other institutional investors increased their ownership of dividend-paying firms following the JGTRR. These results indicate that mutual funds are influenced by the tax preferences of their underlying investors, form tax clienteles, and exhibit different investment policies when compared to other types of institutional investors.

The authors provide the background to the issues decided by the Supreme Court in Mayo regarding the deference the courts should grant to Treasury regulations. The implications are broad, since the deference issue determines whether the administration or the judiciary's opinion should prevail. The paper then discusses the impact of Mayo on the Chevron deference, and how the two-step approach should be applied to regulations and other Treasury pronouncements. Finally, the paper will address the role of legislative history and the Chenery and hard look doctrines within Chevron's two steps.

Determining the deductibility of fines, penalties, settlements, and other forms of restitution paid by taxpayers as a result of violations of criminal and civil law fall under a number of sometimes conflicting code sections, IRS pronouncements, and case law. In this article, we discuss the deductibility of fines, penalties, and other forms of restitution under the provisions of IRC Section 162(f) and the violation of public policy doctrine. Since some taxpayers attempt to capitalize the expenditures rather than deduct them, we also discuss the application of Sections 263 and 263A to these payments. If a taxpayer incurs expenditures in a transaction not part of a trade or business, then the deduction of the expenditure is controlled by Section 165. The application of the violation of public policy doctrine and Section 162(f) to Section 165 are also evaluated. Following the discussion of the current cases and rulings, we recommend several changes in tax law that will clarify and simplify when expenditures related to illegal activities are deductible.

We examine the effectiveness of four federal government actions, all of which were designed to curb the proliferation of corporate tax shelters dating back to the 1990s, at eliciting measurable changes in characteristics commonly associated with tax shelter firms. Our results suggest that the government’s initial attacks on corporate tax shelters in the early 2000s elicited significant declines in book-tax differences, discretionary accruals, and the use of Big N audit firms, which contributed to gradual reductions in the estimated likelihood of tax sheltering for both multinational and purely domestic firms. Conversely, later attempts to discourage corporate tax shelters proved ineffective, likely due in part to the effectiveness of previous government attacks and a faltering economy. This study addresses calls from prior literature for a better understanding of factors determining corporate tax avoidance and offers new evidence of multi-faceted taxpayer reactions to corporate tax reform.

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Congress created the tax-free exchange of like-kind property over 90 years ago and has since made several revisions to the law to prevent tax abuse and limit its application. However, the like-kind exchange rules, now governed by Section 1031, are expanding over time. In this article, we review the legislative history of Section 1031 and recently proposed changes to the law. In line with recent proposals, we recommend that Congress eliminate the special tax treatment granted to like-kind exchanges. However, in the event that Congress is unable or unwilling to make such a change, we also offer policy suggestions to limit current abuses of the like-kind provision relating to exchanges of investment property, the use of qualified intermediaries in non-simultaneous exchanges, and exchanges involving dual-use property.