It takes a very long time for all of the many issues on IRS audits of large corporations to be settled.
Thus, what you see are huge Tax Reserve Liabilities on corporate balance sheets which must reflect, under audited US Generally Accepted Accounting Principles (GAAP), how much the large corporations expect they will have to pay the IRS on each open issue.
And because these IRS audits take so long to settle, there are substantial amounts of interest expense related to these Tax Reserves that are also included as a liability on audited under US GAAP corporate balance sheets.
Because of the importance of Tax Reserves to investors, US GAAP also requires extensive footnote disclosure related to these IRS Reserves.
In a post I made several years ago, based on a quick review of footnotes of some large US
corporations, and also some large foreign corporations with heavy US
operations, 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 bil, including accrued
interest, at the most recent fiscal year end, which for the majority of
these companies was December 31, 2009.
Massive Big Corp Tax Reserves
It is frequently noted how Big Corporations are stopping US economic growth, and the desperately-needed US job creation, by sitting on massive amounts of Cash and Investments.
Well, a portion of these Cash and Investments are there because of the above $268 bil of Tax Reserve Liabilities related to open tax audits, which are also on the books.
Yeah, that's a grossed up corporate balance sheet, inflated by both Cash and Investments on the asset side, and Tax Reserves owed to the US Government, and thus owed to US taxpayers, on the liability side.
Since a large portion of these Tax Reserves that the Big Corporations disclose they owe are owed to the US Government, this significant portion is in essence really the US Government's money, and it only makes sense that these Big Corporations make partial tax deposits to the US Government related to these open IRS audits.
By doing so, those funds can be used by the US Government to stimulate the US economy now, and to create US jobs, instead of waiting for the open IRS audits to settle, which frequently happens many years later.
And there is no economic harm to the Big Corporations for making these partial tax deposits on open IRS Tax Audits, since for the amounts of these tax deposits, subsequent IRS interest is stopped.
This seems like a no brainer to me.
Require Big Corporations to pay a portion of the amount that they disclose that they owe the US Government on open IRS audits as deposits, which is similar to the way estimated quarterly corporate estimated tax payments work.
This ends ups being a substantially positive CBO score to the US Government over the next ten years, since the tax amounts owed on open IRS tax audits are paid in a much more accelerated fashion.
Then in the present US fiscal cliff deliberations, the US Congress now has a substantial amount of funding that can be used to mostly stimulate the US economy immediately with wisely-designed US job-creation initiatives, such as US Job Creation Directly Linked Business Tax Incentives, like 100% first-year tax expensing on equipment purchases, like much accelerated first-year tax depreciation on buildings and building remodelings, and like investments tax credits on equipment and building investments, but with the requirement that to earn these tax benefits, US full-time payroll counts must increase sufficiently, and remain for several years.
I don't see how it could be any better for the Big Corporations. They simply accelerate a portion of what they agree that owe the IRS on tax audits, and their interest stops. And the US Government uses this money the Big Corporations pay them to stimulate the US economy by giving these same Big Corporations very lucrative tax incentives.
