In the context of the statutory tax rate reductions enacted in the Tax Reform Act of 1986, this paper investigates the degree to which capital market participants anticipate and correctly interpret temporary income effects of tax-motivated income shifting. We find evidence consistent with financial analysts' earnings forecasts failing to anticipate earnings management that shifts income from fourth quarters in higher tax rate years to immediately following first quarters of lower tax rate years. The evidence suggests that this failure is not the result of a decision to ignore the income shifting, but rather an inability to recognize temporary components of reported earnings. We also find evidence that market prices do not fully reflect the temporary income effects of tax-motivated income shifting, and that analyst inefficiency explains about half of the market inefficiency. We interpret these inefficiencies as potentially important costs of tax planning that could limit the ability of public firm managers to implement otherwise optimal tax strategies.
This study addresses conflicting results between prior research documenting a client demand for aggressive practitioner‐prepared returns and research establishing taxpayer preferences for accurate returns and cautious reporting behavior. Rather than rely on practitioner reports of client aggressiveness, the tax reporting preferences of clients are examined in afield experiment mailed to small businesses across the country. After subjects had indicated ex ante beliefs about the likelihood of independent contractor status, they significantly altered their behavioral intentions in the direction of a preparer's recommendation. This implies that prior results with practitioner samples may have been biased by the practitioners' personal views. Nonetheless, some aggressive subjects were not as willing to follow the preparer's advice as were the conservative subjects. Evidence is presented on variables that correlate with aggressive tax decision making.
Early detection of cancer will improve survival rates. The blood biomarker 5-hydroxymethylcytosine has been shown to discriminate cancer. In a large covariate-controlled study of over two thousand individual blood samples, we created, tested and explored the properties of a 5-hydroxymethylcytosine-based classifier to detect colorectal cancer (CRC). In an independent validation sample set, the classifier discriminated CRC samples from controls with an area under the receiver operating characteristic curve (AUC) of 90% (95% CI [87, 93]). Sensitivity was 55% at 95% specificity. Performance was similar for early stage 1 (AUC 89%; 95% CI [83, 94]) and late stage 4 CRC (AUC 94%; 95% CI [89, 98]). The classifier could detect CRC even when the proportion of tumor DNA in blood was undetectable by other methods. Expanding the classifier to include information about cell-free DNA fragment size and abundance across the genome led to gains in sensitivity (63% at 95% specificity), with similar overall performance (AUC 91%; 95% CI [89, 94]). We confirm that 5-hydroxymethylcytosine can be used to detect CRC, even in early-stage disease. Therefore, the inclusion of 5-hydroxymethylcytosine in multianalyte testing could improve sensitivity for the detection of early-stage cancer.
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