This paper examines the information provided to stakeholders through the tax footnote in the context of readability. The tax footnote is an interesting disclosure to examine because tax reporting requires bridging a vast volume of tax law with financial accounting principles under ASC 740, and tax returns are proprietary leaving the tax footnote as one of the only public sources of tax information. Our paper extends the literature on qualitative disclosures by examining an important firm disclosure, the tax footnote, in insolation. We provide evidence that the linguistic cues contained in the tax footnote differ from those contained in the 10-K, with regard to corporate tax avoidance.

Prior research identifies tax avoidance as a performance measure for the tax department (Robinson, Sikes, and Weaver 2010; Armstrong, Blouin, and Larcker 2012). The incomplete revelation hypothesis (IRH) (Bloomfield 2002) posits that managers have incentives to highlight positive information when firms are performing...

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