Gap between US corp earnings, taxes paid rose-study.

By Jonathan Nicholson
356 words
18 July 2002
05:47 pm
Reuters News
English
(c) 2002 Reuters Limited

WASHINGTON, July 18 (Reuters) - The gap between pretax earnings reported by companies to their shareholders and the amount of income those companies reported to the Internal Revenue Service rose in the mid-to late 1990s, according to a study released on Thursday.

The gap reached $159.02 billion in 1998, according to a paper in the Statistics of Income Bulletin, issued by the IRS.

In 1997, the gap between pretax income and taxable net income was a smaller $125.96 billion and $92.54 billion in 1996, according to the paper which was written by George Plesko, assistant professor of management at the Massachusetts Institute for Technology's Sloan School of Management.

The study comes as Congress wrestles over how to address recent moves by companies to slash their U.S. income taxes by setting up new corporate headquarters, on paper, in low-tax jurisdictions such as Bermuda.

The moves have infuriated some in Congress who have accused the companies of being unpatriotic in a time of war.

At the same time, the IRS is attempting to crack down on corporate tax shelters, urging greater disclosure by companies when they use potentially questionable transactions to cut their tax bills.

Plesko said the growing difference between reported income and taxable income does not necessarily mean one set of books, either for shareholders or for tax purposes, is wrong.

"The different accounting systems were created for different purposes," he said.

Companies can use a wide range of tactics to reduce their income subject to taxation, including using operating losses accrued from previous years.

Plesko's study also showed hundreds of large companies reported pretax profits to their shareholders but also told the IRS they had no income subject to taxes in the 1996-1998 period. For corporations with assets of $250 million or more, 710 had pretax earnings but no taxable income in 1998, down from 760 in 1997.

On the other hand, about 213 large companies reported some taxable income to the IRS but no pretax income in 1998, up from 175 the year before.

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