IRS Officials' Stock Holdings and Corporate Tax Outcomes

• In Event: Corporate Potpourri: Compliance, Incentives, and Insights

Abstract

We investigate the information content of personal stock trades by IRS officials. We collect transaction-level data on over five thousand IRS officials' personal investments and document substantial trading activity in individual stocks by officials across IRS departments. We find that IRS officials' trades, predominantly their purchases, generate positive abnormal returns on average, consistent with officials' information being not yet fully impounded into stock price. Next, we examine whether stock trades by these officials are associated with the firm's future tax enforcement outcomes. For a given firm, we find IRS officials' purchases are associated with subsequent decreases in tax reserves and specifically lapses in the statute of limitations. We also find that IRS officials' sales are associated with subsequent unfavorable tax settlements. These findings suggest that IRS officials possess, and trade on, material tax-related information and that these trades are associated with future tax enforcement outcomes for firms.

Authors

• Michael Mayberry, University of Florida

• Eashwar Nagaraj, University of Florida

• Scott Rane, University of Florida