TY  - JOUR
AU  - Hanlon,Michelle
AU  - Shevlin,Terry
TI  - Bank-Tax Conformity for Corporate Income: An Introduction to the Issues
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11067
PY  - 2005
Y2  - January 2005
UR  - http://www.nber.org/papers/w11067
L1  - http://www.nber.org/papers/w11067.pdf
N1  - Author contact info:
Michelle Hanlon
Sloan School of Management
Massachusetts Institute of Technology
E62-668, 100 Main Street
Cambridge, MA 02142
E-Mail: mhanlon@mit.edu

Terry Shevlin
Department of Acounting
University of Washington
Box 353200
Seattle, WA 98195-3200
E-Mail: shevlin@u.washington.edu
AB  - This paper discusses the issues surrounding the proposals to conform financial accounting income and taxable income. The two incomes diverged in the late 1990s with financial accounting income becoming increasingly greater than taxable income through the year 2000. While the cause of this divergence is not known for certain, many suspect that it is the result of earnings management for financial accounting and/or the tax sheltering of corporate income. Our paper outlines the potential costs and benefits of one of the proposed "fixes" to the divergence: the conforming of the two incomes into one measure. We review relevant research that sheds light on the issues surrounding conformity both in the U.S. as well as evidence from other countries that have more closely aligned book and taxable incomes. The extant empirical literature reveals that it is unlikely that conforming the incomes will reduce the amount of tax sheltering by corporations and that having only one measure of income will result in a loss of information to the capital markets.
ER  -