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The Impact of the 1986 Tax Reform Act on Income Shifting from Corporate to Shareholder Tax Bases: Evidence from the Motor Carrier Industry
Author(s) -
Enis Charles R.,
Ke Bin
Publication year - 2003
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/1475-679x.00096
Subject(s) - taxable income , shareholder , dividend tax , gross income , income tax , accounting , state income tax , business , international taxation , tax reform , earnings , tax shield , monetary economics , economics , finance , public economics , corporate governance
Using a sample of privately held C corporations and S corporations from the motor carrier industry during 1984–92, we assess the effect of the 1986 Tax Reform Act on the amount of corporate income shareholders of privately held C corporations shifted to their personal tax bases. We estimate that the C corporations shifted a mean of $130,587 taxable income each year to shareholders (representing 29% of their mean accounting earnings before income shifting) after the 1986 tax law change. The C corporations used deductible managerial compensation and rent expense, but not interest expense, to shift income to shareholders.