How Prevalent is Tax Arbitrage? Evidence from the Market for Municipal Bonds

Although tax arbitrage is central to the literatures on tax capitalization, implicit taxes, and even capital structure, there is little empirical evidence of the extent to which firms actually engage in tax arbitrage. This paper provides some evidence on the topic by focusing on a simple and observable corporate arbitrage strategy in the market for municipal bonds. It poses a puzzle for the literature, however, in that we find little evidence of municipal bond tax arbitrage by non-financial corporations. The overwhelming majority of firms are not engaging in the arbitrage at all and even among those engaged in arbitrage, many firms do less than a safe-harbor amount allowed by the tax authorities. Such a pattern is consistent with the presence of both fixed and marginal (i.e., that depend on size of the position) costs of arbitrage, though we cannot observe what those costs are.

The Changing Role of Auditors in Corporate Tax Planning

This paper examines changes in the role that auditors play in corporate tax planning following recent events, including the well-known accounting scandals, passage of the Sarbanes-Oxley Act, and regulatory actions by the SEC and PCAOB. On the whole, these events have increased the sensitivity to and scrutiny of auditor independence. We examine the effects of these events on the market for tax planning, in particular the longstanding link between audit and tax services. While the effects are recent, they are already being seen in the data. Specifically, there has already been a dramatic shift in the market for tax planning away from obtaining tax planning services from one's auditor. We estimate that the ratio of tax fees to audit fees paid to the auditors of firms in the S&P 500 decline from approximately one in 2001 to one-fourth in 2004. At the same time, we find no evidence of a general decline in spending for tax services. In sum, the evidence indicates a decoupling of the longstanding link between audit and tax services, such that firms are shifting their purchase of tax services away from their auditor and towards other providers.

Capital Gains Taxes and Asset Prices: Capitalization or Lock-In?

This paper examines the impact on asset prices from a reduction in the long-term capital gains tax rate using an equilibrium approach that considers both demand and supply responses. We demonstrate that the equilibrium impact of capital gains taxes reflects both the capitalization effect (i.e., capital gains taxes decrease demand) and the lock-in effect (i.e., capital gains taxes decrease supply). Depending on time periods and stock characteristics, either effect may dominate. Using the Taxpayer Relief Act of 1997 as our event, we find evidence supporting a dominant capitalization effect in the week following news that sharply increased the probability of a reduction in the capital gains tax rate and a dominant lock-in effect in the week after the rate reduction became effective. Nondividend paying stocks (whose shareholders only face capital gains taxes) experience higher average returns during the week the capitalization effect dominates and stocks with large embedded capital gains and high tax sensitive investor ownership exhibit lower average returns during the week the lock-in effect dominates. We also find that the tax cut increases the trading volume during the week immediately before and after the tax cut becomes effective and in stocks with large embedded capital gains and high tax sensitive ownership during the dominant lock-in week.

Targeted Delivery of Antioxidant Nanoparticles to Inhibit Restenosis

Cardiovascular disease is the leading cause of death globally, often resulting from the development of atherosclerosis. Common surgical interventions, such as balloon angioplasty, repeatedly fail due to the re-narrowing of an artery over time, a process called restenosis. Neointimal hyperplasia, the proliferation and migration of cells that leads to restenosis, is driven by reactive oxygen species (ROS). In natural response to injury, macrophages target inflammation in the vasculature. This response provides a strategy for targeted delivery of therapeutics, but it is unknown whether macrophages can deliver antioxidant enzymes to sites of arterial injury. We hypothesize that macrophages can be loaded with antioxidant enzyme nanoparticles (NPs) to deliver enzymatically active catalase (CAT) or superoxide dismutase (SOD) in order to decrease ROS and hence, inhibit neointimal hyperplasia. Using dynamic light scattering (DLS) and nanoparticle tracking analysis (NTA), catalase NPs and SOD NPs size and dispersity were characterized. Encapsulated enzymes were enzymatically active and stable for 7 days, indicating that nanoparticles do not inhibit enzymatic activity. Macrophage uptake of enzyme-loaded NPs was assessed using fluorescence microscopy. Uptake by murine macrophages (RAW 264.7) peaked at 2 hours with macrophages engulfing more fluorescently-labeled enzyme-loaded NPs than free enzyme. Using macrophages with antioxidant enzyme-loaded nanoparticles is a viable approach to deliver active catalase or SOD, resulting in a targeted delivery system for sites of restenosis. This strategy would present a great advantage to the medical world, as preparation of targeted drug therapy could be executed ex vivo with the potential to be implemented back into the patient.Bachelor of Scienc

Taking the Long Way Home: U.S. Tax Evasion and Offshore Investments in U.S. Equity and Debt Markets

We empirically investigate one form of illegal investor-level tax evasion and its effect on foreign portfolio investment. In particular, we examine a form of round-tripping tax evasion in which U.S. individuals hide funds in entities located in offshore tax havens and then invest those funds in U.S. securities markets. Employing Becker's (1968) economic theory of crime, we identify the tax evasion component by examining how foreign portfolio investment varies with changes in the incentives to evade and the risks of detection. To our knowledge, this is the first empirical evidence of investor-level tax evasion affecting cross-border equity and debt investment

Tax-Loss Harvesting with Cryptocurrencies

This study describes the landscape of taxation in the crypto markets concerning U.S. taxpayers, and examines how recent increases in tax scrutiny have lead to changes in trading behavior by crypto traders. Using a conceptual framework, we predict and find that increased tax scrutiny leads crypto investors to utilize legal tax planning with tax-loss harvesting as an alternative to non-compliance. In particular, domestic traders increase compliance and tax-loss harvesting following the increase in tax scrutiny, and U.S. exchanges exhibit a significantly greater amount of wash trading. Additional findings suggest that broad-based and targeted changes in tax scrutiny can differentially affect crypto traders’ preference for U.S.-based exchanges. We discuss new gray areas for tax regulation relating to new crypto assets such as Non-Fungible Tokens and Decentralized Finance protocols that highlight the importance of the coordination between tax policy and other regulations

An evaluation of the Homunculi Approach as an intervention for pupils with autism spectrum experiencing anxiety

Young people with Autism Spectrum (AS) are a population at risk of experiencing Mental Health Problems (MHPs); with anxiety being the most commonly reported internalising MHP for this population (Skokauskas & Gallagher, 2012). Schools have been identified as well placed to support pupils experiencing MHPs (DoH & DfE, 2017). The primary aim of the present research was to evaluate the Homunculi Approach (Greig & MacKay, 2013b) as an intervention for secondary aged pupils with AS experiencing anxiety. The secondary aim of the research was to explore factors affecting implementation of the Homunculi Approach. An embedded mixed methods design was utilised where the primary research aim (Phase 1) was supplemented by the secondary research aim (Phase 2). Phase 1 consisted of an A-B single case experimental design (SCED) with four participants across four different secondary schools. Anxiety was measured through: repeated behavioural observations and a weekly anxiety questionnaire (PI-ED); pre and post intervention measures, completed by the young people, parents and teachers (SCAS, SAS-TF and SDQ); and measures which occur organically within the Homunculi Approach intervention. Phase 2 of the research explored the factors which affected implementation of the intervention in schools by interviewing the school staff who delivered the Homunculi Approach. The data was collected using an activity theory framework. The findings from the research indicated the intervention was effective in reducing anxiety for two participants, and ineffective in reducing anxiety for the other two participants. Several implementation factors were identified which may have impacted on the effectiveness of the Homunculi Approach when delivered by members of school staff in secondary schools. The findings are discussed in relation to the literature. Limitations of the research, such as the small sample size and possible impact of external factors, are acknowledged. Possible implications and ideas for future research are presented