This study examines the effects of Securities and Exchange Commission (SEC)’s tax-related comment letters on the extent to which unrecognised tax benefits (UTBs) provide information about future tax cash flows. We find this tax reserve becoming less informative when there is increased SEC scrutiny of firms’ financial statement tax disclosures. This finding is consistent with greater tax-related regulatory scrutiny resulting in more bias in managerial decisions about the recognition and measurement of UTBs. We also find that a higher UTB balance is likely to attract a tax-related comment letter, while receiving such a letter is associated with increased Internal Revenue Service (IRS)’s interest in financial disclosures and a reduction in subsequent reporting of UTB balance. Therefore, the loss of UTB predictability is argued to be the result of managers’ underestimation of UTBs to avoid being targeted in tax audits. Further analysis shows that the effects of SEC scrutiny also manifest in a negative influence on the investors’ valuation of UTBs. Taken together, our findings suggest an unintended consequence of the SEC requesting firms to provide supplemental tax information in the comment letter process.