We empirically examine whether firms with greater tax risk exhibit a lower probability of dividend payouts, reduces the amount of dividend payouts, entertainment expenses, and other discretionary expenses (i.e., advertising expenses, welfare expenses, and donation etc.) due to a precautionary motive to hold cash for potential future tax burdens. Specifically, we examine their relation compared to tax avoidance. More recently, one study in this line of research reports that a significant portion of the cash buffer is associated with uncertainty regarding a firm’s tax positions (Hanlon et al., 2017). Yet, prior literature has granted little attention to what the opportunity costs for specific sources of uncertainty are or the magnitude of these costs (if they exist). Motivated by this, our study extends prior literature by examining whether a particular cash buffer linked with tax risk related to current and prior tax positions alters firm decisions about dividend policy (like cancelled plans to initiate dividends or lower dividend levels), or simply a reduction in more discretionary spending (like entertainment expenses, advertisement, welfare expenses, and donation). In our tests, to measure tax risk (hereafter TRISK), we calculate the volatility of annual Cash ETSs and GAAP ETRs over the five-year period t-4 to t (e.g., Amberger, 2017; Drake et al., 2017, Jacob et al., 2018 etc.), and we follow Dyreng et al. (2008) and calculate long-run Cash ETRs and GAAP ETRs over the five-year period t-4 to t to measure the level of tax avoidance (hereafter TAVOID). We consider 6,585 firm-year observations for sample firm from the Korea Exchange, and we select satisfying of the criteria for firms with positive pre-tax income and ETR data from 2003 through 2016 to construct four the volatility of Cash (GAAP) ETRs, and the long-run Cash (GAAP) ETRs measures. Our main results are as follows. First, after controlling for several variables as well as tax avoidance that affect the probability of dividend payouts, we find a negative and significant relation between tax risk (i.e., TRISK) and the probability of dividend payouts. This result suggests that tax risk negatively affects the likelihood of dividend payouts. While, we find no significant association between tax avoidance (i.e., TAVOID) and the probability of dividend payouts. Second, after controlling for several variables as well as tax avoidance that affect the amount of dividend payouts, we find a negative and significant relation between tax risk and the amount of dividend payouts. This result suggest that firms with greater tax risk are less likely to distribute dividends. In addition, we find a negative and significant relation between tax avoidance and the amount of dividend payouts. Third, we find a negative and significant relation between tax risk and the amount of entertainment expenses, we included TAVOID to control for the level of tax avoidance. This result show that firms with greater tax risk are less likely to distribute dividends, suggesting there is an important real opportunity cost of sidelining cash for this purpose. In addition, we find a negative and significant relation between tax avoidance and the amount of entertainment expenses. Fourth, in additional tests, we find a negative and significant relation between tax risk and discretionary expenses (i.e., advertising expenses, welfare expenses), consistent with precautionary motives for holding cash. While, we find a negative and significant relation between tax avoidance and discretionary expenses (i.e., advertising expenses, welfare expenses, donation expenditures). Finally, when we partition the sample into financial constraints (financially constrained firms versus financial unconstrained firms), we found mostly similar results to this version. This is, we no found the effect of tax risk is stronger in the presence of financial constraints. In sum, we show that tax risk reduces the probability of dividend payouts, the amount of dividend payouts, the amount of entertainment expenses as well as advertising expenses, and welfare expenses. Whereas, we show that tax avoidance reduces the amount of dividend payouts, the amount of entertainment expenses as well as advertising expenses, welfare expenses, and donation expenditures. Thus, tax risk is a relevant determinant of the decision to distribute dividends and of observable dividend levels, and the levels of entertainment expenses as well as discretionary expenses (i.e., advertising expenses, welfare expenses), we find that our results hold when we control for the level of tax avoidance. Therefore, tax uncertainty contributes to overall future cash flow uncertainty and impairs the persistence and predictability of after-tax cash flows available for distribution. This finding should interest investors, practitioners, tax authorities, regulators, and policymakers as volatile tax payments might be an indicator for lower dividend levels, not only but also lower discretionary expenses (i.e., advertising expenses, welfare expenses). Our findings also provide new evidence to the tax risk and tax avoidance in prior literature.