Under US generally accepted accounting principles, public companies are required to disclose in their footnotes included in their annual reports filed with the SEC, their best estimate of what they owe in total to all taxing authorities for all of their open tax audit years. The bulk of these amounts disclosed relate to the amounts owed to the US Federal Government. Also included in this total are amounts owed to State Governments and to Foreign Governments.
Back in October 2010, I did a quick review of footnotes of some large US corporations, and also some large foreign corporations with heavy US operations, and from just my very limited review, I found 384 companies that had amounts owed for all open IRS tax audit years in excess of $100 mil each, that in the aggregate totaled $268.1 bil, including accrued interest, at the most recent fiscal year end, which for the majority of these companies was December 31, 2009.
It takes a very long time for these companies to settle their tax audits with the IRS and other taxing authorities. For the largest Dow companies, there was an average of more than 8 years of open tax audit years.
Huge US Multinational Corps make up a large portion of the Aggregate Balance of Total Tax Reserves for all Corps having Tax Reserves above $100 mil each. Here is a stratification of these Corp Tax Reserves by size:
..Tax Reserves.....
Above $5 bil…………......12 Corps…..$82.1 bil….30.6% of total
$2 bil to $5 bil…………...20 Corps….$56.9 bil….21.2% of total
$1 bil to $2 bil…………....24 Corps….$31.5 bil….11.8% of total
$500 mil to $1 bil……....49 Corps….$35.5 bil….13.2% of total
$250 mil to $500 mil….93 Corps….$32.7 bil….12.2% of total
$100 mil to $250 mil…186 Corps….$29.4 bil….11.0% of total
All above $100 mil…….384 Corps..$268.1 bil…100.0%
In this post, I am updating this earlier quick review of these income tax footnotes of these large companies.
Here are the 50 US companies which had a Tax Reserve of at least $1 bil at the most recent date, which was December 31, 2010 for the majority of these companies:
………………....................Date……..Tax Reserve
…………………………......................(bils of US$s)
JPMorgan Chase.......Dec 2010.........9.4
Pfizer.......................Dec 2010.........7.7
GE............................Dec 2010.........7.4
Microsoft.................Jun 2010.........7.3
Merck......................Dec 2010.........6.5
Wells Fargo..............Dec 2010.........6.4
Bank of America.......Dec 2010.........6.3
AIG..........................Dec 2010.........6.2
ATT..........................Dec 2010.........5.7
IBM..........................Dec 2010.........5.7
General Motors........Dec 2010.........5.5
Exxon Mobil............Dec 2010.........4.8
Entergy....................Dec 2010.........4.6
Citigroup..................Dec 2010.........4.4
Morgan Stanley.........Dec 2010.........4.0
Verizon.....................Dec 2010.........3.8
Oracle.......................May 2011.........3.8
Chevron....................Dec 2010.........3.7
TE Connectivity.........Sep 2010.........2.9
Cisco Systems............Jul 2010.........2.8
Abbott Labs..............Dec 2010.........2.7
JNJ...........................Dec 2010.........2.6
PepsiCo.....................Dec 2010.........2.6
Procter & Gamble......Jun 2010.........2.5
Dell............................Jan 2011.........2.5
Time Warner..............Dec 2010.........2.4
Goldman Sachs..........Dec 2010.........2.3
Hewlett Packard........Oct 2010.........2.3
Covidien....................Sep 2010.........2.1
Comcast....................Dec 2010.........1.9
Energy Future Hldgs..Dec 2010.........1.8
Eli Lilly......................Dec 2010.........1.8
American Express.....Dec 2010.........1.6
Chrysler....................Dec 2010.........1.6
Accenture.................Aug 2010.........1.5
Kraft Foods................Dec 2010.........1.5
Boeing.......................Dec 2010.........1.4
Schlumberger............Dec 2010.........1.4
ConocoPhillips...........Dec 2010.........1.3
Boston Scientific........Dec 2010.........1.3
Johnson Controls.......Sep 2010.........1.3
Google.......................Dec 2010.........1.2
Apple.........................Sep 2010.........1.2
Freddie Mac...............Dec 2010.........1.2
Ford...........................Dec 2010.........1.1
Amgen.......................Dec 2010.........1.0
Walmart.....................Jan 2011.........1.0
Metlife.......................Dec 2010.........1.0
United Technologies..Dec 2010.........1.0
Berkshire Hathaway...Dec 2010.........1.0
Total for all 50...............................159.0
In this new study, I found many new Big Corps which had Tax Reserves above $100 mil. And, although some of them had smaller Tax Reserves, I found that a large number of these Corps had higher Tax Reserves now than they disclosed a year ago.
Also, there weren't very many foreign companies included in the 384 with Tax Reserves above $100 mil each that I showed in my earlier study back in October 2010. The majority of large foreign corps, with heavy US operations, follow International GAAP, rather than US GAAP. Thus, they generally do not disclose the amount of the Tax Reserves they have on their books.
Anyway, I can think of no fairer, less innocuous way to derive a portion of the $1 trillion of tax revenues than to simply require all Big Corps with Tax Reserves above $100 mil each, to make partial deposits on their open IRS audits. And frankly, it raises money from a CBO scoring standpoint, but all that is really happening to the Big Corp is that a portion of what Big Corps agree that they owe, and have already recorded on their books, is simply being paid a bit earlier in deposits over time.
I think perhaps these partial tax deposits should be 50% of the amount of Tax Reserves on the books, with that 50% staggered in over the next 10 years. To be even more fair, I think I would require a somewhat higher percentage than 50% for the really large Big Corps and a somewhat lower percentage for the smaller Big Corps.
There is absolutely no negative economic consequences for these Big Corps to make these partial tax deposits. When these deposits are made, the accrual of interest stops. And the US Government’s interest charge here is much higher than what nearly all of the Big Corps could get on their own financing.
So, how much funding do you get here from this proposal?
When I track the last three years, the average increase in these Total Tax Reserves is 8.7% per year. Thus I’ll very conservatively assume only an average of 5% growth per year from here on out.
The Total Tax Reserve for these 384 companies in 2009 was $268 bil. A portion of this $268 bil is for state and foreign income taxes. I’ll say this is more than offset by the many Big Corps with Tax Reserves above $100 mil each that are not included in the $268 bil. And then to be even more conservative, I also won’t grow this $268 bil through 2011.
When you compound this $268 bil at 5% per year, starting in 2012, it comes to $437 bil in 10 years. Thus, the funding over the next 10 year CBO scoring period would be 50% X $437 bil, or $218 bil. So, that’s 21.8% of the $1 trillion funding needed for the Debt Ceiling Deal.
