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Fiscal year-ends and financial benefits: the role of prospective measurement dates in tax reform
Journal article   Peer reviewed

Fiscal year-ends and financial benefits: the role of prospective measurement dates in tax reform

Cristi A Gleason, Tyler Menzer and Jaron H Wilde
The journal of the American Taxation Association : a publication of the Tax Section of the American Accounting Association, Vol.47(1), pp.141-171
2025
DOI: 10.2308/JATA-2021-035

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Abstract

The Tax Cuts and Jobs Act (TCJA) of 2017 dramatically reshaped the tax landscape for companies and reduced incentives for multinationals to leave foreign earnings abroad. We study a provision of the law that allowed some multinationals to take simple measures to reduce their tax burden more than other firms. The TCJA levied a tax on accumulated income held in foreign subsidiaries of U.S. firms. The implementation of this tax left firms an avenue to protect shareholder wealth, as foreign income retained as “cash” was taxed at a higher rate (15.5 percent) than foreign income retained in other asset classes (8 percent). Measurement rules allowed some firms significantly more time to shift foreign cash holdings to “noncash” assets and lower their tax burden. Using staggered, firm-specific measurement dates, we find that fiscal year-end firms with more time to respond to the law reduced their cash levels more than other firms.
 TCJA Tax Cuts and Jobs Act repatriation tax international tax

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