We use a regulatory shock to examine whether the prospect of short selling affected tax disclosures. From May 2005 to August 2007, the Securities and Exchange Commission initiated a pilot program under Regulation SHO, temporarily exempting one-third of the Russell 3000 index firms from short sale price tests, reducing short selling costs. Before the pilot program, we find that pilot firms' income tax footnote disclosures are similar to non-pilot firms. During the pilot program, we find that pilot firms have more readable income tax footnotes than non-pilot firms. The words describing tax activities also changed for tax aggressive pilot firms. In further tests, we observe greater readability among pilot firms led by senior executives whose personal wealth is more sensitive to stock price changes. After the pilot program ends, the differences between pilot and non-pilot firms disappear. These results suggest that the prospect of short selling affects tax disclosures.