IRS Data Shows Companies Reported Higher Profits But Lower Taxes
The Internal Revenue Service has revealed that publicly traded companies reduced
their reportable income by $34.8 billion in 2004 compared with 2002 despite
a 40% increase in profits reported to investors, raising once again the issue
of the gap between the income that companies report to shareholders and the
tax authorities. According to new IRS data for 2004, US public companies reported about $554
billion in pretax profits to Wall Street in 2004, but only about $394 billion
to the IRS. The total reported to investors that year by companies that year,
including publicly traded firms, was $707 billion, while $523 billion was reported
to the IRS. The figures are likley to lead to a renewed push by the IRS and senior figures
in Congress for a crackdown on the use of tax shelters to reduce corporate tax
liabilty. Indeed, the IRS has begun to collect such data in an attempt to get
a better picture of the gap between taxable and book income, and how this gap
occurs. In 2004, companies were required to supply more data on their annual tax returns
to explain why this gap might have occured in an attempt to garner clues as
to whether companies may have used questionable tax shelters. This data will
be used by the agency to help focus its broader campaign against tax evasion
towards firms that its considers pose a higher risk. The debate on whether companies should compile a single report to be seen by
both investors and the IRS, as reportedly discussed between Tax Commissioner
Mark Everson and Securities and Exchange Commission chairman Christopher Cox
at a lunch meeting earlier this year, may also resurface in the light of the
new data. Meanwhile, total reported income, including individual income, amounted to
$7.044 trillion in 2004, down from $7.143 trillion in 2000. This fall has been
attributed to a rise in the US population, which caused a decline in average
real income over the period, but also coincided with the bursting of the technology
bubble in 2000, which led to billions of dollars being wiped off individuals'
stock investments. Individual income tax receipts also fell over the period in question, although
at a much faster rate, largely as a result of tax cuts passed under the Geroge
W. Bush presidency. According to the data, individual income tax reciepts were 21.6% lower in 2004
at $831.8 billion, compared with the $980.4 billion collected in 2000. .
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