Tax Administration: Comparison of the Reported Tax Liabilities of
Foreign- and U.S.-Controlled Corporations, 1998-2005 (24-JUL-08, 
GAO-08-957).							 
                                                                 
Concerns about transfer pricing abuse have led researchers to	 
compare the tax liabilities of foreign- and U.S.-controlled	 
corporations. (Transfer prices are the prices related companies  
charge on intercompany transactions.) However, such comparisons  
are complicated because other factors may explain the differences
in reported tax liabilities. In three prior reports, GAO found	 
differences in the percentages of foreign-controlled and	 
U.S.-controlled corporations reporting no tax liability. GAO was 
asked to update the previous reports by comparing: (1) the tax	 
liabilities of foreign-controlled domestic corporations (FCDC)	 
and U.S.-controlled corporations (USCC)-including those reporting
zero tax liabilities for 1998 through 2005 (the latest available 
data) and (2) characteristics of FCDCs and USCCs such as age,	 
size, and industry. GAO analyzed data from the Internal Revenue  
Service's Statistics of Income samples of corporate tax returns. 
GAO does not make any recommendations in this report. In	 
commenting on a draft of this report, IRS provided comments on	 
technical issues, which we incorporated into this report where	 
appropriate.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-957 					        
    ACCNO:   A83060						        
  TITLE:     Tax Administration: Comparison of the Reported Tax       
Liabilities of Foreign- and U.S.-Controlled Corporations,	 
1998-2005							 
     DATE:   07/24/2008 
  SUBJECT:   Comparative analysis				 
	     Corporate audits					 
	     Corporations					 
	     Financial management				 
	     Financial statements				 
	     Foreign corporations				 
	     Income taxes					 
	     International relations				 
	     Liability (legal)					 
	     Losses						 
	     Noncompliance					 
	     Prices and pricing 				 
	     Program abuses					 
	     Program evaluation 				 
	     Program management 				 
	     Reporting requirements				 
	     Tax administration 				 
	     Tax credit 					 
	     Tax information confidentiality			 
	     Tax returns					 
	     Taxes						 
	     Taxpayers						 

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GAO-08-957

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Report to Congressional Requesters: 

United States Government Accountability Office: 

GAO: 

July 2008: 

Tax Administration: 

Comparison of the Reported Tax Liabilities of Foreign-and U.S.- 
Controlled Corporations, 

1998-2005: 

Tax Administration: 

GAO-08-957: 

GAO Highlights: 

Highlights of GAO-08-957, a report to congressional requesters. 

Why GAO Did This Study: 

Concerns about transfer pricing abuse have led researchers to compare 
the tax liabilities of foreign- and U.S.-controlled corporations. 
(Transfer prices are the prices related companies charge on 
intercompany transactions.) However, such comparisons are complicated 
because other factors may explain the differences in reported tax 
liabilities. In three prior reports, GAO found differences in the 
percentages of foreign-controlled and U.S.-controlled corporations 
reporting no tax liability. GAO was asked to update the previous 
reports by comparing: (1) the tax liabilities of foreign-controlled 
domestic corporations (FCDC) and U.S.-controlled corporations 
(USCC)ï¿½including those reporting zero tax liabilities for 1998 through 
2005 (the latest available data) and (2) characteristics of FCDCs and 
USCCs such as age, size, and industry. GAO analyzed data from the 
Internal Revenue Serviceï¿½s Statistics of Income samples of corporate 
tax returns. GAO does not make any recommendations in this report. In 
commenting on a draft of this report, IRS provided comments on 
technical issues, which we incorporated into this report where 
appropriate. 

What GAO Found: 

FCDCs reported lower tax liabilities than USCCs by most measures shown 
in this report. A greater percentage of large FCDCs reported no tax 
liability in a given year from 1998 through 2005. For all corporations, 
a higher percentage of FCDCs reported no tax liabilities than USCCs 
through 2001 but differences after 2001 were not statistically 
significant. Most large FCDCs and USCCs that reported no tax liability 
in 2005 also reported that they had no current-year income. A smaller 
proportion of these corporations had losses from prior years and tax 
credits that eliminated any tax liability. By another measure, large 
FCDCs were more likely to report no tax liability over multiple years 
than large USCCs. In 2005, comparisons of FCDCs and USCCs based on 
ratios of reported tax liabilities to gross receipts or total assets 
showed that FCDCs reported less tax than USCCs. 

FCDCs and USCCs differed in age, size, and industry. FCDCs were younger 
than USCCs in that a greater percentage had been incorporated for 3 
years or less from 1998 through 2005. In 2005, FCDCs were larger on 
average than USCCs in that they reported higher average gross receipts 
and assets than USCCs. A comparison by industry in 2005 showed that 
large FCDCs were relatively more concentrated in manufacturing and 
wholesale trade, while large USCCs were more evenly distributed across 
industries. GAO did not attempt to determine the extent to which these 
factors and others, such as transfer pricing abuse, explain differences 
in tax liabilities. 

Figure: Percentages of FCDCs and USCCs That Reported No Tax Liability, 
Tax Years 1998 through 2005: 

This figure is a combination line graph showing percentages of FCDCs 
and USCCs that reported no tax liability, tax years 1998 through 2005. 
The lines represent all FCDCs, all USCCs, large FCDCs, and large USCCs. 
The X axis represents the tax year, and the Y axis represents the 
percentage. 

Tax year: 1998; 
Large USCCs: 23.2; 
Large FCDCs: 29.3; 
All USCCs: 60.9; 
All FCDCs: 66.5. 

Tax year: 1999; 
Large USCCs: 26.3; 
Large FCDCs: 31.5; 
All USCCs: 61.1; 
All FCDCs: 67. 

Tax year: 2000; 
Large USCCs: 31.4; 
Large FCDCs: 35.2; 
All USCCs: 62.8; 
All FCDCs: 68.4. 

Tax year: 2001; 
Large USCCs: 38; 
Large FCDCs: 53.6; 
All USCCs: 64.6; 
All FCDCs: 71.7. 

Tax year: 2002; 
Large USCCs: 37.8; 
Large FCDCs: 49.5; 
All USCCs: 68.6; 
All FCDCs: 71.4. 

Tax year: 2003; 
Large USCCs: 32.6; 
Large FCDCs: 40.9; 
All USCCs: 69.3; 
All FCDCs: 66.9. 

Tax year: 2004; 
Large USCCs: 29.7; 
Large FCDCs: 34.4; 
All USCCs: 69.1; 
All FCDCs: 65.8. 

Tax year: 2005; 
Large USCCs: 25.2; 
Large FCDCs: 28; 
All USCCs: 66.7; 
All FCDCs: 65.2. 

[See PDF for image] 

Source: GAO analysis of IRS data. 

[End of figure] 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-957]. For more 
information, contact Jim White at (202) 512-9110 or [email protected]. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

FCDCs Reported Lower Tax Liabilities Than USCCs by Most Measures: 

FCDCs and USCCs Differ by Age, Size, and Industry: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Additional Tables: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: FCDCs and USCCs Reporting No Tax Liability, Tax Years 1998 
through 2005: 

Table 2: FCDCs and USCCs Reporting No Tax Liability, Tax Years 1998 
through 2005: 

Table 3: FCDCs and USCCs That Established No Tax Liability by Tax 
Return Line Item, Tax Year 2005: 

Table 4: FCDCs and USCCs Average Gross Receipts and Tax Liabilities, 
Tax Year 2005: 

Table 5: Percentage of FCDCs and USCCs That Were New, Tax Years 1998 
through 2005: 

Table 6: FCDCs and USCCs Cost Ratios by Major Industry, Tax Year 2005: 

Figures: 

Figure 1: Percentages of FCDCs and USCCs That Reported No Tax 
Liability, Tax Years 1998 through 2005: 

Figure 2: Percentage of Large FCDCs and USCCs That Reported No Tax 
Liability for Multiple Years between 1998 and 2005: 

Figure 3: Percentage of FCDCs and USCCs with No Tax Liability by the 
First Line on Their Tax Return Where They Established No Tax Liability, 
Tax Year 2005: 

Figure 4: FCDC and USCC Tax Liabilities as a Percentage of Gross 
Receipts and Assets, Tax Year 2005: 

Figure 5: Percentage of FCDCs and USCCs That Were New, Tax Years 1998 
through 2005: 

Figure 6: FCDC and USCC Average Gross Receipts and Assets, Tax Year 
2005: 

Figure 7: FCDCs and USCCs by Major Industry, Tax Year 2005: 

Figure 8: Percentage of Total Deductions for FCDCs and USCCs That First 
Established No Tax Liability on Line 28, Tax Year 2005: 

United States Government Accountability Office: 

Washington, DC 20548: 

July 24, 2008: 

The Honorable Carl Levin: 
Chairman: 
Permanent Subcommittee on Investigations: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable Byron Dorgan: 
United States Senate: 

In response to your long-standing concerns about whether foreign- 
controlled U.S. corporations are abusing transfer prices and avoiding 
U.S. income tax, we compared the tax liabilities of foreign-and U.S.- 
controlled companies incorporated in the U.S. in three prior 
reports.[Footnote 1] We reported that from 1989 through 2000 foreign- 
controlled corporations were more likely to report zero U.S. income tax 
liability than U.S.-controlled corporations with a majority of both 
types of corporations reporting no liability. We said that corporations 
may not report U.S income taxes for a variety of reasons including 
current-year operating losses, tax credits, and transfer pricing 
abuses. 

Transfer prices are the prices related companies, such as a parent and 
subsidiary, charge on intercompany transactions. By manipulating 
transfer prices, multinational companies can shift income from higher 
to lower tax jurisdictions, reducing the companies' overall tax 
liability. As we noted in our previous reports, researchers acknowledge 
that transfer pricing abuses may explain some of the differences in tax 
liabilities of foreign-controlled corporations compared to U.S.- 
controlled corporations. However, researchers have had difficulty 
determining the exact extent to which transfer pricing abuses explain 
the differences due to data limitations. 

Based on your request, we updated our 2004 report. Specifically, we 
agreed to study (1) how the tax liability of foreign-controlled 
domestic corporations (FCDC) compares to that of U.S.-controlled 
corporations (USCC)--including the percentage of corporations reporting 
zero tax liabilities for tax years 1998 through 2005 and (2) how 
corporate characteristics such as age, size, and industry compare 
between FCDCs and USCCs.[Footnote 2] 

To meet these objectives, we analyzed data from the Internal Revenue 
Service's (IRS) Statistics of Income (SOI) samples of corporate tax 
returns for tax years 1998 through 2005. These SOI samples were based 
on returns as filed, and did not reflect IRS audit results or any net 
operating loss carrybacks from future years. The data that we report 
are estimates based on the SOI sample. Sampling errors are reported in 
appendix II. Caution should be used when comparing estimates because 
not all differences between estimates are statistically significant. 
Various types of corporations report their taxes on different forms and 
may differ in their tax liabilities. Unlike our previous reports, here 
we report separately for each form type. The estimates in the body of 
the report are for corporations filing Forms 1120 or 1120-A. (In app. 
II we provide separate estimates for corporations filing Forms 1120-L, 
1120-PC, 1120-REIT, 1120-RIC, and 1120S.) We also report separately for 
large corporations--those with at least $250 million in assets or $50 
million in gross receipts--because, while they account for less than 1 
percent of all corporations, they make up over 90 percent of all assets 
reported on corporate returns. 

As agreed, we did not attempt to determine whether corporations were 
abusing transfer prices. Nor did we attempt to determine the extent to 
which this abuse explains any differences in the reported tax 
liabilities of FCDCs and USCCs. Detailed information on our scope and 
methodology appears in appendix I. 

We conducted our work from November 2007 through July 2008 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Results in Brief: 

FCDCs reported lower tax liabilities than USCCs by most measures shown 
in this report. A greater percentage of large FCDCs reported no tax 
liability in a given year from 1998 through 2005, and large FCDCs were 
more likely to report no tax liability over multiple years than large 
USCCs. Corporations can establish the basis for no tax liability at 
different places on their tax returns. For example, some corporations 
could have zero income before deducting expenses and others could have 
zero net income after deducting expenses--both of which could result in 
no tax liability. In 2005, large FCDCs and USCCs differed little in 
where on their tax returns they first established no tax liability. 
Most large FCDCs and USCCs first established no tax liability where 
they reported their net current income after deducting expenses. A 
smaller proportion--about 10 percent--reported losses from prior years 
that eliminated any tax liability. In 2005, alternative comparisons of 
FCDCs and USCCs based on ratios of reported tax liabilities to gross 
receipts or total assets showed that FCDCs reported less tax than 
USCCs. 

FCDCs and USCCs differed in age, size, and industry. FCDCs were younger 
than USCCs in that a greater percentage had been incorporated for 3 
years or less from 1998 through 2005. In 2005, FCDCs were larger on 
average than USCCs in that they reported higher average gross receipts 
and assets than USCCs. A comparison by industry showed that FCDCs were 
concentrated in different industries compared with USCCs in 2005. We 
did not attempt to determine the extent to which these factors 
explained differences in tax liabilities. 

In commenting on a draft of this report, IRS provided comments on 
technical issues, which we incorporated into this report where 
appropriate. 

Background: 

Researchers have studied the factors explaining why FCDCs report lower 
tax liabilities than USCCs.[Footnote 3] Generally, the research has 
recognized that nontax characteristics such as age and industry may 
explain some of the differences in reported tax liabilities. The 
researchers have also found that transfer pricing abuses may play a 
role in explaining the differences. However, measuring the separate 
effects of these factors on tax liabilities has been difficult due to 
data limitations. 

Factors like the age and industry of corporations may affect tax 
liabilities by affecting net income. For example, younger corporations 
may be less likely than older corporations to have net income and, 
therefore, more likely to report no tax liability than older 
corporations. If FCDCs tend to be younger than USCCs, age differences 
may explain some of the difference in reported tax liabilities. We 
noted in our 1999 report that a study by Grubert (1997) suggested that 
the lower relative age of foreign-controlled corporations partially 
explained their lower reported profitability. However, data are not 
available on all the nontax characteristics that may affect tax 
liabilities. 

Tax liabilities may also be reduced through transfer pricing abuse. Any 
company that has a related company, such as a subsidiary with which it 
transacts business, needs to establish transfer prices for those 
intercompany transactions. The transfer price should be the "arm's 
length price," i.e., the price that would be charged if the transaction 
occurred between unrelated companies. Section 482 of the Internal 
Revenue Code provides IRS authority to allocate income among related 
companies if IRS determines that the transfer prices used by the 
taxpayer were inappropriate. How transfer prices are set affects the 
distribution of profits and ultimately the taxable income of the 
companies. The following is an example of abusive cross-border transfer 
pricing. A foreign parent corporation with a subsidiary operating in 
the United States charges the subsidiary excessive prices for goods and 
services rendered (for example, $1,000 instead of the going rate of 
$600). This raises the subsidiary's expenses (by $400), lowers its 
profits (by $400), and effectively shifts that income ($400) outside of 
the United States. At a 35-percent U.S. corporate income tax rate, the 
subsidiary will pay $140 less in U.S. taxes than it would if the $400 
in profits were attributed to it. 

Researchers have used direct and indirect methods to estimate the 
extent to which transfer pricing abuses explain the differences in 
reported tax liabilities. Direct methods analyze the transfer prices 
used by corporations and compare them to arm's length prices. This 
method is difficult to apply because price data are often unavailable 
and determining the price that would be charged between unrelated 
parties can be difficult. An alternative, indirect method used by 
researchers analyzes data about the characteristics of corporations in 
order to test for a statistical relationship between tax rates and 
subsidiaries' profitability or tax liability. In some of these studies, 
statistical methods are used to explain as much of the difference in 
reported tax liabilities as can be explained by the nontax 
characteristics and the remaining unexplained difference is identified 
as the upper limit of the difference that could be explained by 
transfer pricing abuse.[Footnote 4] However, how close this upper limit 
estimate is to the actual effect of transfer pricing abuse depends on 
how many of the important nontax characteristics have been included in 
the first stage of the analysis. As noted above, data are unavailable 
for some important nontax characteristics. 

Low tax burdens can be measured in various ways. Zero tax liability is 
one way. However, corporations paying only small, but not zero, amounts 
of tax also face low tax burdens. Furthermore, corporations that pay no 
or little tax over a number of years have a lower cumulative tax 
burden. Therefore, measures based on a range of tax amounts and tax 
years may give a fuller description of which types of corporations pay 
relatively less. Finally, the amount of taxes paid generally 
corresponds with the size of the corporation, with large corporations 
on average paying more than small ones. Tax liability can be measured 
as the amount of tax paid as a percentage of gross receipts or total 
assets in order to account for differences in the size of corporations. 

FCDCs Reported Lower Tax Liabilities Than USCCs by Most Measures: 

Our comparison of tax liabilities highlights three measures that are 
used by tax experts: (1) the percentage of corporations reporting no 
tax liability, (2) the number of years corporations reported no tax 
liability, and (3) tax liabilities reported by corporations as a 
percentage of gross receipts and assets. 

A Large Percentage of Both FCDCs and USCCs Reported No Tax Liabilities: 

A greater percentage of large FCDCs reported no tax liability in a 
given year from 1998 through 2005, as shown in figure 1. (See table 1 
in app. II for the detailed estimates.) From 1998 through 2001, a 
higher percentage of all FCDCs reported no tax liability than all 
USCCs, but differences after 2001 were not statistically significant. 

As figure 1 shows, the number of large FCDCs and large USCCs that 
reported no tax liability peaked around 2001 and 2002. These years 
correspond roughly with a period of economic recession in the United 
States. However, we did not do any analysis to determine the effect of 
the recession on the patterns shown if figure 1. 

After 2001, the percentage of large FCDCs and USCCs reporting no tax 
liability began to converge. By 2005, the difference was reduced to 3 
percentage points. For corporations other than those filing tax Forms 
1120 and 1120-A, the percentage of corporations that reported no tax 
liability varied by tax year and tax return type. (For detailed 
comparisons of these corporations, see table 2 in app. II.) 

Figure 1: Percentages of FCDCs and USCCs That Reported No Tax 
Liability, Tax Years 1998 through 2005: 

This figure is a combination line graph showing percentages of FCDCs 
and USCCs that reported no tax liability, tax years 1998 through 2005. 
The lines represent all FCDCs, all USCCs, large FCDCs, and large USCCs. 
The X axis represents the tax year, and the Y axis represents the 
percentage. 

Tax year: 1998; 
Large USCCs: 23.2; 
Large FCDCs: 29.3; 
All USCCs: 60.9; 
All FCDCs: 66.5. 

Tax year: 1999; 
Large USCCs: 26.3; 
Large FCDCs: 31.5; 
All USCCs: 61.1; 
All FCDCs: 67. 

Tax year: 2000; 
Large USCCs: 31.4; 
Large FCDCs: 35.2; 
All USCCs: 62.8; 
All FCDCs: 68.4. 

Tax year: 2001; 
Large USCCs: 38; 
Large FCDCs: 53.6; 
All USCCs: 64.6; 
All FCDCs: 71.7. 

Tax year: 2002; 
Large USCCs: 37.8; 
Large FCDCs: 49.5; 
All USCCs: 68.6; 
All FCDCs: 71.4. 

Tax year: 2003; 
Large USCCs: 32.6; 
Large FCDCs: 40.9; 
All USCCs: 69.3; 
All FCDCs: 66.9. 

Tax year: 2004; 
Large USCCs: 29.7; 
Large FCDCs: 34.4; 
All USCCs: 69.1; 
All FCDCs: 65.8. 

Tax year: 2005; 
Large USCCs: 25.2; 
Large FCDCs: 28; 
All USCCs: 66.7; 
All FCDCs: 65.2. 

[See PDF for image] 

Source: GAO analysis of IRS data. 

[End of figure] 

Notes: "Large" FCDCs or USCCs are those with assets of at least $250 
million dollars or gross receipts of at least $50 million dollars. 
Differences between all FCDCs and all USCCs were not statistically 
significant in 2002, 2003, 2004, and 2005. 

[End of figure] 

A Greater Percentage of Large FCDCs Reported No Tax Liability over 
Multiple Years between 1998 and 2005: 

In the 8 years from 1998 through 2005, large FCDCs in a panel data set 
that we analyzed consisting of tax returns that were present in the SOI 
corporate files in every year were more likely to report no tax 
liability over multiple years than large USCCs in the same panel data 
set. As figure 2 shows, about 72 percent of FCDCs and 55 percent of 
USCCs reported no tax liability for at least 1 year during the 8 years. 
About 57 percent of FCDCs and 42 percent of USCCs reported no tax 
liability in multiple years--2 or more years--and about 34 percent of 
FCDCs and 24 percent of USCCs reported no tax liability for at least 
half the study period--4 or more years. A correspondingly higher 
percentage of USCCs reported a tax liability in all 8 years, 45 percent 
for USCCs and 28 percent for FCDCs. 

Figure 2: Percentage of Large FCDCs and USCCs That Reported No Tax 
Liability for Multiple Years between 1998 and 2005: 

This figure is a combination bar graph showing percentage of large 
FCDCs and USCCs that reported no tax liability for multiple years 
between 1998 and 2005. 

Tax liability reported in all years; 
Large FCDCs: 28.3; 
Large USCCs: 45.1. 

No tax liability reported in at least 1 year; 
Large FCDCs: 71.7; 
Large USCCs: 54.9. 

No tax liability reported for 1 year; 
Large FCDCs: 14.5; 
Large USCCs: 13.0. 

No tax liability reported for multiple years: 2 years; 
Large FCDCs: 11.7; 
Large USCCs: 9.1. 

No tax liability reported for multiple years: 3 years; 
Large FCDCs: 11.2; 
Large USCCs: 8.4. 

No tax liability reported for multiple years: 4 years; 
Large FCDCs: 11.0; 
Large USCCs: 7.7. 

No tax liability reported for multiple years: 5 years; 
Large FCDCs: 10.5; 
Large USCCs: 5.8. 

No tax liability reported for multiple years: 6 years; 
Large FCDCs: 5.7; 
Large USCCs: 4.8. 

No tax liability reported for multiple years: 7 years; 
Large FCDCs: 4.1; 
Large USCCs: 3.4. 

No tax liability reported for multiple years: 8 years; 
Large FCDCs: 2.9; 
Large USCCs: 2.7. 

[See PDF for image] 

Source: GAO analysis of panel data developed by GAO from the SOI 
database. 

[End of figure] 

Large FCDCs and USCCs Were Similar in Where on Their Tax Returns They 
Established Zero Tax Liability: 

Large FCDCs and USCCs reporting no tax liability in 2005 arrived at 
that result in similar ways on their tax returns, as shown in figure 3. 
At a high level, corporate tax returns are organized to (1) calculate 
gross profit as gross receipts or sales minus the cost of goods sold; 
(2) calculate total income as gross profit plus other types of income; 
(3) report various deductible expenses; (4) calculate taxable income as 
the difference between income and deductions; and (5) calculate the tax 
liability for the taxable income. Corporations can establish the basis 
for a zero tax liability at different stages in these calculations by 
reporting, for example, that they have no total income or no taxable 
income which results in their having no tax liability. Figure 3 shows 
the percentage of corporations reporting no tax liability in 2005 by 
the line on their tax return where they first reported the zero dollar 
amounts that resulted in no tax liability. For example, the figure 
shows that 3 percent of large FCDCs and 1 percent of large USCCs 
established no tax liability by reporting no gross profit on line 3 of 
their returns.[Footnote 5] This pattern of similar percentages for 
large corporations continues throughout the tax return. For example, a 
similar, small percentage of large FCDCs or USCCs, around 4 to 5 
percent, established their zero tax liability on line 11 by reporting 
zero total income. 

As figure 3 shows, the overwhelming majority, about 79 to 80 percent of 
both large FCDCs and USCCs that reported zero tax liability in 2005, 
established it on line 28 where they reported zero taxable income 
before net operating losses. This means that their reported current- 
year deductions more than offset the positive current-year total income 
reported on line 11. The two most commonly used deductions, as a 
percentage of the value of all deductions claimed, were "other 
deductions"[Footnote 6] and the deduction for salaries and wages. See 
table 3 and figure 8 in appendix II for detailed comparisons of tax 
return line items and deductions. 

On the corporate tax return, current-year taxable income is reported 
before net operating losses from other years are deducted and any tax 
credits are subtracted from tax liabilities. In 2005, losses from prior 
years and tax credits had less impact on where on the tax return large 
corporations first established no tax liability. Figure 3 shows on line 
30 that a relatively small number of large corporations--about 10 
percent--first established a zero tax liability by carrying forward 
losses from prior years, and that an even smaller number--about 3 
percent--first established no tax liability through their use of tax 
credits, as reported on line 11 schedule J in the figure. 

All FCDCs and USCCs differed in some ways from large FCDCs and USCCs in 
where on their tax returns they first established no tax liability, 
reflecting the influence of small corporations. As figure 3 shows, a 
higher percentage of all corporations established no tax liability on 
the gross profit and total income lines on their returns than large 
corporations. All corporations also show a greater impact of losses 
from prior years, with 19 to 24 percent first establishing no tax 
liability when they reported taxable income on line 30 after 
subtracting these losses. 

However, there were also similarities between all corporations and 
large corporations in 2005. As with large corporations, all FCDCs and 
USCCs were most likely to first establish no tax liability on line 28 
of their tax returns--over 46 percent for FCDCs and 58 percent for 
USCCs. In addition, as with large corporations, tax credits had little 
impact with only about 1 percent of all corporations first establishing 
no liability through their use of credits. 

Figure 3 also shows that all FCDCs differed from all USCCs more than 
the large FCDCs differed from large USCCs. Whereas large FCDCs and 
USCCs differed little in where on the return they established no tax 
liability, all FCDCs were more than twice as likely to first establish 
no tax liability on the gross profit and total income lines as all 
USCCs. 

Figure 3: Percentage of FCDCs and USCCs with No Tax Liability by the 
First Line on Their Tax Return Where They Established No Tax Liability, 
Tax Year 2005: 

This figure is a copy of a tax return showing percentage of FCDCs and 
USCCs with no tax liability by the first line on their tax return where 
they established no tax liability, tax year 2005. 

[See PDF for image] 

Source: GAO analysis of IRS information. 

Note: Percentages do not total to 100 due to certain adjustments that 
IRS made to reported tax return data to account for such factors as a 
one-time dividend deduction election. 

[A] Differences between FCDCs and USCCs are not statistically 
significant. 

[End of figure] 

FCDCs Reported Less Tax Liability Than USCCs as a Percentage of Both 
Gross Receipts and Total Assets: 

Alternative comparisons of FCDCs and USCCs based on ratios of reported 
tax liabilities to gross receipts or total assets also showed that 
FCDCs reported less tax than USCCs. Figure 4 shows that taxes as a 
percentage of gross receipts and assets were higher for USCCs than 
FCDCs. FCDCs reported lower tax liabilities in 2005 as a percentage of 
gross receipts than USCCs. For all FCDCs the percentage was about 1.4 
percent, while for all USCCs the percentage was about 1.7 percent. This 
pattern was similar for large corporations where FCDCs had lower tax 
liability as a percentage of gross receipts-about 1.3 percent compared 
to about 2.1 percent for large USCCs. 

Figure 4: FCDC and USCC Tax Liabilities as a Percentage of Gross 
Receipts and Assets, Tax Year 2005: 

This figure is a multiple bar graph showing FCDS and USCC tax 
liabilities as a percentage of gross receipts and assets, tax year 
2005. The X axis represents the gross receipts and the assets. The Y 
axis represents the percentage. 

Gross receipts; 
All FCDCs: 1.38; 
All USCCs: 1.70; 
Large FCDCs: 1.34; 
Large USCCs: 2.06. 

Assets; 
All FCDCs: 0.59; 
All USCCs: 0.86; 
Large FCDCs: 0.56; 
Large USCCs: 0.84. 

[See PDF for image] 

Source: GAO analysis. 

[End of figure] 

Another comparison of FCDCs and USCCs based on amounts of tax liability 
in addition to zero tax liability showed that differences between FCDCs 
and USCCs became smaller as their reported tax liabilities increased. 
The difference between the percentage of large FCDCs and USCCs that 
report no tax liability was about 3 percent in 2005, and this 
difference reduces to 1 percent when we include corporations reporting 
tax liabilities less than $100,000 in the comparison. The difference is 
eliminated entirely when we compare those that report less than $1 
million in tax liability. (For details of these comparisons, see table 
4 in app. II.) 

FCDCs and USCCs Differ by Age, Size, and Industry: 

Differences in age, size, industry and other nontax factors between 
FCDCs and USCCs could explain some of the differences in their reported 
tax liabilities. Also, companies in different industries often have 
different financial characteristics which could affect relative 
measures of tax liability. For instance, the relative levels of assets 
and receipts of companies primarily engaged in wholesale trade differ 
significantly from those primarily engaged in credit intermediation, 
such as commercial banks. We did not attempt to explain the extent to 
which these factors or others, such as transfer pricing abuses, might 
explain differences in the reported tax liabilities of FCDCs and USCCs. 

A Higher Percentage of Large FCDCs Than Large USCCs Were New: 

A higher percentage of large FCDCs than large USCCs were new 
corporations (incorporated for 3 years or less) for tax years 1998 
through 2005, as shown in figure 5. The percentages of large FCDCs that 
were new ranged from 9 percent to 14 percent, while for large USCCs the 
percentages ranged from 7 percent to 10 percent. For all FCDCs and 
USCCs, except for 1998 through 2000, there were no years with a 
statistically significant difference between the percentages of these 
types of corporations that were new. (See table 5 in app. II for the 
detailed estimates.) 

Figure 5: Percentage of FCDCs and USCCs That Were New, Tax Years 1998 
through 2005: 

This figure is a combination line graph showing percentage of FCDCs and 
USCCs that were new, tax years 1998 through 2005. The lines represent 
all FCDCs, all USCCs, large FCDCs, and large USCCs. The X axis 
represents tax year, and the Y axis represents percentage. 

Tax year: 1998; 
Large USCCs: 10.4; 
Large FCDCs: 11.9; 
All USCCs: 20.2; 
All FCDCs: 26.1. 

Tax year: 1999; 
Large USCCs: 10.1; 
Large FCDCs: 13.5; 
All USCCs: 19.4; 
All FCDCs: 25.4. 

Tax year: 2000; 
Large USCCs: 9.1; 
Large FCDCs: 13.6; 
All USCCs: 18.4; 
All FCDCs: 23.7. 

Tax year: 2001; 
Large USCCs: 8.2; 
Large FCDCs: 14; 
All USCCs: 19.4; 
All FCDCs: 21.9. 

Tax year: 2002; 
Large USCCs: 7.2; 
Large FCDCs: 11.2; 
All USCCs: 19.1; 
All FCDCs: 23.6. 

Tax year: 2003; 
Large USCCs: 6.6; 
Large FCDCs: 10; 
All USCCs: 18.5; 
All FCDCs: 19.8. 

Tax year: 2004; 
Large USCCs: 7.1; 
Large FCDCs: 9.5; 
All USCCs: 18.1; 
All FCDCs: 19.9. 

Tax year: 2005; 
Large USCCs: 8; 
Large FCDCs: 9.1; 
All USCCs: 18.8; 
All FCDCs: 22.2. 

[See PDF for image] 

Source: GAO analysis of IRS data. 

Note: Differences between all FCDCs and all USCCs were not 
statistically significant in 2001, 2002, 2003, 2004, and 2005. 

[End of figure] 

FCDCs Reported Higher Average Gross Receipts and Assets Than USCCs: 

FCDCs tended to be larger in that in 2005 they reported higher average 
assets and gross receipts than USCCs, as shown in figure 6. All FCDCs 
reported an average of about $100 million in assets compared to about 
$9 million for all USCCs. Large FCDCs also reported higher amounts of 
assets--an average of about $1.6 billion compared to about $1.1 billion 
for large USCCs. 

FCDCs reported more average gross receipts in 2005. All FCDCs reported 
an average of about $43 million in gross receipts, while USCCs reported 
an average of about $5 million. Although the magnitudes were larger for 
large corporations, the pattern of gross receipts was similar. Large 
FCDCs reported higher average gross receipts--about $663 million 
compared to about $447 million for large USCCs. 

Figure 6: FCDC and USCC Average Gross Receipts and Assets, Tax Year 
2005: 

This figure is a combination bar graph showing FCDC and USCC average 
gross receipts and assets, tax year 2005. The X axis represents average 
gross receipts and average assets. 

Average gross receipts; 
All FCDCs: $43; 
All USCCs: $5; 
Large FCDCs: $663; 
Large USCCs: $447. 

Average assets; 
All FCDCs: $100; 
All USCCs: $9; 
Large FCDCs: $1,595; 
Large USCCs: $1,090. 

[See PDF for image] 

Source: GAO analysis of IRS data. 

[End of figure] 

FCDCs and USCCs Were Concentrated in Different Industries: 

In 2005, FCDCs and USCCs differed in their distribution across 
industries. As figure 7 shows, all FCDCs were more concentrated in the 
wholesale trade and financial services industries, while all USCCs were 
more concentrated in the nonfinancial services industry. When the focus 
is limited to large corporations, FCDCs were relatively more 
concentrated in manufacturing and wholesale trade. Large USCCs were 
more evenly distributed across the industries shown in figure 7. 

Figure 7: FCDCs and USCCs by Major Industry, Tax Year 2005: 

This figure is a combination of two horizontal bar graphs displaying 
FCDCs and USCCs by major industry, tax year 2005. The left bar graph 
represents all FCDCs and USCCs. The right bar graph represents large 
FCDCs and large USCCs. The values represent percentage. 

Manufacturing; 
All FCDCs: 10.9; 
All USCCs: 6.0; 
Large FCDCs: 38.5; 
Large USCCs: 22.7. 

Wholesale trade; 
All FCDCs: 25.5; 
All USCCs: 7.9; 
Large FCDCs: 29.2; 
Large USCCs: 15.8. 

Financial services; 
All FCDCs: 27.2; 
All USCCs: 14.8; 
Large FCDCs: 9.1; 
Large USCCs: 18.4. 

Nonfinancial services; 
All FCDCs: 16.2; 
All USCCs: 37.2; 
Large FCDCs: 9.5; 
Large USCCs: 14.2. 

Retail trade; 
All FCDCs: 6.1; 
All USCCs: 11.6; 
Large FCDCs: 3.5; 
Large USCCs: 12.1. 

Other [A]; 
All FCDCs: 14.2; 
All USCCs: 22.5; 
Large FCDCs: 10.3; 
Large USCCs: 16.7. 

[See PDF for image] 

Source: GAO analysis of IRS data. 

[A] Other includes transportation and warehousing; utilities; mining; 
construction; agriculture, forestry, hunting and fishing; and other 
trades. 

[End of figure] 

Differences in cost ratios across industries are possible explanations 
for why industry concentration might affect the reported tax 
liabilities of FCDCs and USCCs. Cost differences could affect profits, 
and thus tax liabilities. For example, the higher cost of goods sold 
relative to receipts could contribute to lower taxable income relative 
to receipts, and consequently lower tax liability relative to receipts. 
In tax year 2005, all FCDCs were more likely to have higher cost of 
goods sold, purchases, and interest as a percentage of gross receipts 
for most industries than were USCCs. The results were similar for large 
corporations. (For details of these comparisons of cost ratios, see 
table 6 in app. II.) 

Agency Comments: 

We provided a draft of this report to the IRS for its comments. On July 
21, the Research, Analysis and Statistics unit provided comments via e- 
mail on technical issues, which we incorporated into this report where 
appropriate. 

As agreed with your offices, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
from its date. At that time, we will send copies of this report to the 
Secretary of the Treasury, the Commissioner of Internal Revenue, and 
other interested parties. This report will also be available at no 
charge on GAO's Web site at [hyperlink, http://www.gao.gov]. 

If you or your staff has any questions about this report, please 
contact me at (202) 512-9110 or [email protected]. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made contributions to this 
report are listed in appendix III. 

Signed by: 

James R. White: 

Director, Tax Issues Strategic Issues Team: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

The objectives of this assignment were to study (1) how the tax 
liability of foreign-controlled domestic corporations (FCDC) compares 
to that of U.S.-controlled corporations (USCC)--including the 
percentage of corporations reporting zero tax liabilities for tax years 
1998 through 2005 and (2) how corporate characteristics, such as age, 
size, or industry, compare between FCDCs and USCCs. For both of our 
objectives, we used data from Internal Revenue Service's (IRS) 
Statistics of Income (SOI) files on corporate tax returns for tax years 
1998 through 2005. These SOI samples were based on returns as filed, 
and did not reflect IRS audit results or any net operating loss 
carrybacks from future years. Each tax return is treated as a separate 
corporation which, in the case of consolidated returns, may be composed 
of a number of subsidiary corporations. To provide information on the 
number of years large corporations did not report tax liabilities, we 
developed a panel data set consisting of the tax returns of large 
corporations that were present in the SOI corporate files in every year 
from 1998 through 2005. We did not include corporations that changed 
ownership status as USCCs or FCDCs during this period. We also did not 
analyze changes in the composition of corporations that filed 
consolidated returns. The gross receipts and assets of the corporations 
present in the panel data set account for on average about 40 percent 
of gross receipts and assets of all corporations and about 50 percent 
of the gross receipts and assets of large corporations from 1998 
through 2005. Over time, the corporations present in the panel data 
account for an increasing share of corporate gross receipts and assets. 
For example in 1998 and 1999 the panel data corporations accounted for 
about 40 percent of the gross receipts and assets of all large 
corporations. This percentage increased to about 60 percent by 2005. 

To compare all and large FCDCs and USCCs based on the tax liabilities 
they reported on their U.S. income tax returns, we made estimates for a 
variety of measures of tax liability. For the purposes of this report, 
an FCDC is a U.S. corporation with 50 percent or more of its voting 
stock owned by a foreign person or entity. Foreign control of a U.S. 
corporation exists when a foreign investor gains control of an existing 
U.S. company or creates a new company that it incorporates in the 
United States. Both FCDCs and USCCs are subject to U.S. income tax laws 
although the tax treatment of some income may differ. Large 
corporations are those with at least $250 million of assets or at least 
$50 million of receipts. We also compared differences in FCDCs and 
USCCs by age and industry sector. We defined new corporations as those 
for which income tax returns showed incorporation dates within 3 years 
of the tax year date; all others were considered old corporations. For 
example, for tax year 2005, new corporations are those with 
incorporation dates no earlier than 2003. We did not attempt to 
determine whether corporations were abusing transfer prices. Nor did we 
attempt to determine the extent to which such abuse explains any 
differences in the reported tax liabilities of FCDCs and USCCs. 

The SOI corporation data we used in our comparison of tax liabilities 
of FCDCs and USCCs included domestic corporations. We reported 
separately for corporations that reported tax liabilities on Form 1120 
(U.S. Corporation Income Tax Return) and Form 1120-A (U.S. Corporation 
Short-Form Income Tax Return). We also provided in table 2 of appendix 
II information on corporations that reported no tax liabilities on 
Forms 1120-L (U.S. Life Insurance Company Income Tax Return), 1120-PC 
(U.S. Property and Casualty Insurance Company Income Tax Return), 1120- 
REIT (U.S. Income Tax Return for Real Estate Investment Trusts), 1120- 
RIC (U.S. Income Tax Return for Regulated Investment Companies), and 
1120S (U.S. Income Tax Return for an S Corporation). Some of these 
types of corporations, such as REITs and RICs, are pass-through 
entities that generally do not incur corporate tax liabilities. We did 
not include foreign corporations in our comparison of FCDCs and USCCs 
or those that filed Form 1120-F (U.S. Income Tax Return of a Foreign 
Corporation). 

The SOI data in this report is based on SOI's probability sample of 
corporate tax returns and thus is subject to some imprecision owing to 
sampling variability. Using SOI's sampling weights, we estimated 
sampling errors for our estimates, which are reported in appendix II. 
Caution should be used when comparing estimates because not all 
differences between estimates are statistically significant. 
Differences between all FCDCs and USCCs, and large FCDCs and USCCs, are 
statically significant unless noted at the bottom of each figure or 
table. To ensure that the data were comparable across years, we 
converted all dollar-based data to 2005 dollars. The data included tax 
liabilities, total income, gross receipts, assets, cost of goods sold, 
interest, and purchases reported. 

SOI is a data set widely used for research purposes. SOI data are not 
available to the public except in aggregate form via published tables. 
These data tables are publicly available either in printed form or on 
the [hyperlink, http://www.irs.gov] Web site. IRS performs a number of 
quality control steps to verify the internal consistency of SOI sample 
data. For example, it performs computerized tests to verify the 
relationships between values on the returns selected as part of the SOI 
sample, and manually edits data items to correct for problems, such as 
missing items. We conducted several reliability tests to ensure that 
the data excerpts we used for this report were complete and accurate. 
For example, we electronically tested the data and used published data 
as a comparison to ensure that the data set was complete. To ensure 
accuracy, we reviewed related documentation and electronically tested 
for obvious errors. We concluded that the data were sufficiently 
reliable for the purposes of this report. 

We requested comments on a draft of this report from the Commissioner 
of Internal Revenue. We conducted our review from November 2007 through 
July 2008 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient appropriate evidence to provide a reasonable basis 
for our findings and conclusions based on our audit objectives. We 
believe that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Additional Tables: 

The tables in this statistical appendix supplement those in the letter 
and provide population estimates. After each table, notes indicate the 
sampling errors. We are confident the true estimates would be within 
these percentage points in 95 out of every 100 samples. Finally, we 
conducted tests to determine if there were significant differences 
between all FCDCs and USCCs and between large FCDCs and USCCs. The 
comparisons that were not statistically significant are noted in each 
table. 

Corporations That Reported No Tax Liability: 

Table 1: FCDCs and USCCs Reporting No Tax Liability, Tax Years 1998 
through 2005: 

Tax year: 1998; 
FCDCs, all: Number: Forms 1120 and 1120-A: 39,414; 
FCDCs, all: Percentage: Forms 1120 and 1120-A: 66.5; 
USCCs, all: Number: Forms 1120 and 1120-A: 1,322,375; 
USCCs, all: Percentage: Forms 1120 and 1120-A: 60.9; 
FCDCs, large: Number: Forms 1120 and 1120-A: 898; 
FCDCs, large: Percentage: Forms 1120 and 1120-A: 29.3; 
USCCs, large: Number: Forms 1120 and 1120-A: 3,451; 
USCCs, large: Percentage: Forms 1120 and 1120-A: 23.2. 

Tax year: 1999; 
FCDCs, all: Number: Forms 1120 and 1120-A: 38,687; 
FCDCs, all: Percentage: Forms 1120 and 1120-A: 67.0; 
USCCs, all: Number: Forms 1120 and 1120-A: 1,296,663; 
USCCs, all: Percentage: Forms 1120 and 1120-A: 61.1; 
FCDCs, large: Number: Forms 1120 and 1120-A: 1,007; 
FCDCs, large: Percentage: Forms 1120 and 1120-A: 31.5; 
USCCs, large: Number: Forms 1120 and 1120-A: 3,961; 
USCCs, large: Percentage: Forms 1120 and 1120-A: 26.3. 

Tax year: 2000; 
FCDCs, all: Number: Forms 1120 and 1120-A: 39,341; 
FCDCs, all: Percentage: Forms 1120 and 1120-A: 68.4; 
USCCs, all: Number: Forms 1120 and 1120-A: 1,316,163; 
USCCs, all: Percentage: Forms 1120 and 1120-A: 62.8; 
FCDCs, large: Number: Forms 1120 and 1120-A: 1,190; 
FCDCs, large: Percentage: Forms 1120 and 1120-A: 35.2; 
USCCs, large: Number: Forms 1120 and 1120-A: 4,804; 
USCCs, large: Percentage: Forms 1120 and 1120-A: 31.4. 

Tax year: 2001; 
FCDCs, all: Number: Forms 1120 and 1120-A: 41,544; 
FCDCs, all: Percentage: Forms 1120 and 1120-A: 71.7; 
USCCs, all: Number: Forms 1120 and 1120-A: 1,330,859; 
USCCs, all: Percentage: Forms 1120 and 1120-A: 64.6; 
FCDCs, large: Number: Forms 1120 and 1120-A: 1,802; 
FCDCs, large: Percentage: Forms 1120 and 1120-A: 53.6; 
USCCs, large: Number: Forms 1120 and 1120-A: 5,463; 
USCCs, large: Percentage: Forms 1120 and 1120-A: 38.0. 

Tax year: 2002; 
FCDCs, all: Number: Forms 1120 and 1120-A: 42,567; 
FCDCs, all: Percentage: Forms 1120 and 1120-A: 71.4[A]; 
USCCs, all: Number: Forms 1120 and 1120-A: 1,385,182; 
USCCs, all: Percentage: Forms 1120 and 1120-A: 68.6[A]; 
FCDCs, large: Number: Forms 1120 and 1120-A: 1,600; 
FCDCs, large: Percentage: Forms 1120 and 1120-A: 49.5; 
USCCs, large: Number: Forms 1120 and 1120-A: 5,143; 
USCCs, large: Percentage: Forms 1120 and 1120-A: 37.8. 

Tax year: 2003; 
FCDCs, all: Number: Forms 1120 and 1120-A: 38,166; 
FCDCs, all: Percentage: Forms 1120 and 1120-A: 66.9[A]; 
USCCs, all: Number: Forms 1120 and 1120-A: 1,367,105; 
USCCs, all: Percentage: Forms 1120 and 1120-A: 69.3[A]; 
FCDCs, large: Number: Forms 1120 and 1120-A: 1,333; 
FCDCs, large: Percentage: Forms 1120 and 1120-A: 40.9; 
USCCs, large: Number: Forms 1120 and 1120-A: 4,386; 
USCCs, large: Percentage: Forms 1120 and 1120-A: 32.6. 

Tax year: 2004; 
FCDCs, all: Number: Forms 1120 and 1120-A: 36,353; 
FCDCs, all: Percentage: Forms 1120 and 1120-A: 65.8[A]; 
USCCs, all: Number: Forms 1120 and 1120-A: 1,350,332; 
USCCs, all: Percentage: Forms 1120 and 1120-A: 69.1[A]; 
FCDCs, large: Number: Forms 1120 and 1120-A: 1,183; 
FCDCs, large: Percentage: Forms 1120 and 1120-A: 34.4; 
USCCs, large: Number: Forms 1120 and 1120-A: 4,072; 
USCCs, large: Percentage: Forms 1120 and 1120-A: 29.7. 

Tax year: 2005; 
FCDCs, all: Number: Forms 1120 and 1120-A: 38,483; 
FCDCs, all: Percentage: Forms 1120 and 1120-A: 65.2[A]; 
USCCs, all: Number: Forms 1120 and 1120-A: 1,263,726; 
USCCs, all: Percentage: Forms 1120 and 1120-A: 66.7[A]; 
FCDCs, large: Number: Forms 1120 and 1120-A: 998; 
FCDCs, large: Percentage: Forms 1120 and 1120-A: 28.0; 
USCCs, large: Number: Forms 1120 and 1120-A: 3,565; 
USCCs, large: Percentage: Forms 1120 and 1120-A: 25.2. 

Source: GAO analysis of IRS data. 

Note: Percentage estimates for FCDCs have sampling errors of less than 
(+/-) 4 percentage points; percentage estimates for USCCs have sampling 
errors of less than (+/-) 1 percentage point. 

[A] Differences between FCDCs and USCCs are not statistically 
significant. 

[End of table] 

Table 2: FCDCs and USCCs Reporting No Tax Liability, Tax Years 1998 
through 2005: 

Tax year: 1998; 
FCDCs, all: Number: Forms 1120-L: 12; 
FCDCs, all: Percentage: Forms 1120-L: 16.4; 
USCCs, all: Number: Forms 1120-L: 638; 
USCCs, all: Percentage: Forms 1120-L: 33.2; 
FCDCs, large: Number: Forms 1120-L: 10; 
FCDCs, large: Percentage: Forms 1120-L: 17.9[B]; 
USCCs, large: Number: Forms 1120-L: 88; 
USCCs, large: Percentage: Forms 1120-L: 16.9[B]. 

Tax year: 1999; 
FCDCs, all: Number: Forms 1120-L: 20; 
FCDCs, all: Percentage: Forms 1120-L: 25.2[B]; 
USCCs, all: Number: Forms 1120-L: 644; 
USCCs, all: Percentage: Forms 1120-L: 35.4[B]; 
FCDCs, large: Number: Forms 1120-L: 11; 
FCDCs, large: Percentage: Forms 1120-L: 19.0[B]; 
USCCs, large: Number: Forms 1120-L: 88; 
USCCs, large: Percentage: Forms 1120-L: 17.4[B]. 

Tax year: 2000; 
FCDCs, all: Number: Forms 1120-L: 23; 
FCDCs, all: Percentage: Forms 1120-L: 24.8[B]; 
USCCs, all: Number: Forms 1120-L: 641; 
USCCs, all: Percentage: Forms 1120-L: 36.9[B]; 
FCDCs, large: Number: Forms 1120-L: 15; 
FCDCs, large: Percentage: Forms 1120-L: 23.8[B]; 
USCCs, large: Number: Forms 1120-L: 96; 
USCCs, large: Percentage: Forms 1120-L: 20.5[B]. 

Tax year: 2001; 
FCDCs, all: Number: Forms 1120-L: 38; 
FCDCs, all: Percentage: Forms 1120-L: 39.5[B]; 
USCCs, all: Number: Forms 1120-L: 664; 
USCCs, all: Percentage: Forms 1120-L: 38.1[B]; 
FCDCs, large: Number: Forms 1120-L: 28; 
FCDCs, large: Percentage: Forms 1120-L: 40.0; 
USCCs, large: Number: Forms 1120-L: 129; 
USCCs, large: Percentage: Forms 1120-L: 25.7. 

Tax year: 2002; 
FCDCs, all: Number: Forms 1120-L: 39; 
FCDCs, all: Percentage: Forms 1120-L: 39.7[B]; 
USCCs, all: Number: Forms 1120-L: 672; 
USCCs, all: Percentage: Forms 1120-L: 38.1[B]; 
FCDCs, large: Number: Forms 1120-L: 34; 
FCDCs, large: Percentage: Forms 1120-L: 45.3; 
USCCs, large: Number: Forms 1120-L: 182; 
USCCs, large: Percentage: Forms 1120-L: 31.6. 

Tax year: 2003; 
FCDCs, all: Number: Forms 1120-L: 21; 
FCDCs, all: Percentage: Forms 1120-L: 34.3[B]; 
USCCs, all: Number: Forms 1120-L: 634; 
USCCs, all: Percentage: Forms 1120-L: 36.3[B]; 
FCDCs, large: Number: Forms 1120-L: 14; 
FCDCs, large: Percentage: Forms 1120-L: 33.3[B]; 
USCCs, large: Number: Forms 1120-L: 152; 
USCCs, large: Percentage: Forms 1120-L: 24.2[B]. 

Tax year: 2004; 
FCDCs, all: Number: Forms 1120-L: 28; 
FCDCs, all: Percentage: Forms 1120-L: 28.5[B]; 
USCCs, all: Number: Forms 1120-L: 566; 
USCCs, all: Percentage: Forms 1120-L: 33.5[B]; 
FCDCs, large: Number: Forms 1120-L: 16; 
FCDCs, large: Percentage: Forms 1120-L: 21.6[B]; 
USCCs, large: Number: Forms 1120-L: 133; 
USCCs, large: Percentage: Forms 1120-L: 20.9[B]. 

Tax year: 2005; 
FCDCs, all: Number: Forms 1120-L: 32; 
FCDCs, all: Percentage: Forms 1120-L: 28.7[B]; 
USCCs, all: Number: Forms 1120-L: 458; 
USCCs, all: Percentage: Forms 1120-L: 29.2[B]; 
FCDCs, large: Number: Forms 1120-L: 24; 
FCDCs, large: Percentage: Forms 1120-L: 27.3; 
USCCs, large: Number: Forms 1120-L: 97; 
USCCs, large: Percentage: Forms 1120-L: 15.4. 

Tax year: 1998; 
FCDCs, all: Number: Forms 1120-PC: 25; 
FCDCs, all: Percentage: Forms 1120-PC: 33.3[B]; 
USCCs, all: Number: Forms 1120-PC: 1,554; 
USCCs, all: Percentage: Forms 1120-PC: 43.8[B]; 
FCDCs, large: Number: Forms 1120-PC: 13; 
FCDCs, large: Percentage: Forms 1120-PC: 32.5[B]; 
USCCs, large: Number: Forms 1120-PC: 130; 
USCCs, large: Percentage: Forms 1120-PC: 26.0[B]. 

Tax year: 1999; 
FCDCs, all: Number: Forms 1120-PC: 31; 
FCDCs, all: Percentage: Forms 1120-PC: 42.4[B]; 
USCCs, all: Number: Forms 1120-PC: 1,742; 
USCCs, all: Percentage: Forms 1120-PC: 47.6[B]; 
FCDCs, large: Number: Forms 1120-PC: 19; 
FCDCs, large: Percentage: Forms 1120-PC: 47.5[B]; 
USCCs, large: Number: Forms 1120-PC: 154; 
USCCs, large: Percentage: Forms 1120-PC: 32.0[B]. 

Tax year: 2000; 
FCDCs, all: Number: Forms 1120-PC: 37; 
FCDCs, all: Percentage: Forms 1120-PC: 49.6[B]; 
USCCs, all: Number: Forms 1120-PC: 1,703; 
USCCs, all: Percentage: Forms 1120-PC: 46.6[B]; 
FCDCs, large: Number: Forms 1120-PC: 23; 
FCDCs, large: Percentage: Forms 1120-PC: 54.3; 
USCCs, large: Number: Forms 1120-PC: 144; 
USCCs, large: Percentage: Forms 1120-PC: 30.1. 

Tax year: 2001; 
FCDCs, all: Number: Forms 1120-PC: 59; 
FCDCs, all: Percentage: Forms 1120-PC: 64.0; 
USCCs, all: Number: Forms 1120-PC: 1,799; 
USCCs, all: Percentage: Forms 1120-PC: 46.7; 
FCDCs, large: Number: Forms 1120-PC: 39; 
FCDCs, large: Percentage: Forms 1120-PC: 69.6; 
USCCs, large: Number: Forms 1120-PC: 187; 
USCCs, large: Percentage: Forms 1120-PC: 40.1. 

Tax year: 2002; 
FCDCs, all: Number: Forms 1120-PC: 47; 
FCDCs, all: Percentage: Forms 1120-PC: 53.4[B]; 
USCCs, all: Number: Forms 1120-PC: 1,794; 
USCCs, all: Percentage: Forms 1120-PC: 43.9[B]; 
FCDCs, large: Number: Forms 1120-PC: 26; 
FCDCs, large: Percentage: Forms 1120-PC: 65.0; 
USCCs, large: Number: Forms 1120-PC: 170; 
USCCs, large: Percentage: Forms 1120-PC: 35.0. 

Tax year: 2003; 
FCDCs, all: Number: Forms 1120-PC: 42; 
FCDCs, all: Percentage: Forms 1120-PC: 39.7[B]; 
USCCs, all: Number: Forms 1120-PC: 1,550; 
USCCs, all: Percentage: Forms 1120-PC: 35.1[B]; 
FCDCs, large: Number: Forms 1120-PC: 12; 
FCDCs, large: Percentage: Forms 1120-PC: 25.4[B]; 
USCCs, large: Number: Forms 1120-PC: 90; 
USCCs, large: Percentage: Forms 1120-PC: 17.3[B]. 

Tax year: 2004; 
FCDCs, all: Number: Forms 1120-PC: 32; 
FCDCs, all: Percentage: Forms 1120-PC: 32.7[B]; 
USCCs, all: Number: Forms 1120-PC: 1,813; 
USCCs, all: Percentage: Forms 1120-PC: 32.8[B]; 
FCDCs, large: Number: Forms 1120-PC: 16; 
FCDCs, large: Percentage: Forms 1120-PC: 34.8; 
USCCs, large: Number: Forms 1120-PC: 81; 
USCCs, large: Percentage: Forms 1120-PC: 15.5. 

Tax year: 2005; 
FCDCs, all: Number: Forms 1120-PC: 40; 
FCDCs, all: Percentage: Forms 1120-PC: 36.8[B]; 
USCCs, all: Number: Forms 1120-PC: 1,502; 
USCCs, all: Percentage: Forms 1120-PC: 26.0[B]; 
FCDCs, large: Number: Forms 1120-PC: 23; 
FCDCs, large: Percentage: Forms 1120-PC: 41.1; 
USCCs, large: Number: Forms 1120-PC: 73; 
USCCs, large: Percentage: Forms 1120-PC: 14.2. 

Tax year: 1998; 
FCDCs, all: Number: Forms 1120-REIT: 27; 
FCDCs, all: Percentage: Forms 1120-REIT: 93.1[B]; 
USCCs, all: Number: Forms 1120-REIT: 862; 
USCCs, all: Percentage: Forms 1120-REIT: 95.4[B]; 
FCDCs, large: Number: Forms 1120-REIT: 12; 
FCDCs, large: Percentage: Forms 1120-REIT: 100.0[B]; 
USCCs, large: Number: Forms 1120-REIT: 316; 
USCCs, large: Percentage: Forms 1120-REIT: 95.8[B]. 

Tax year: 1999; 
FCDCs, all: Number: Forms 1120-REIT: 29; 
FCDCs, all: Percentage: Forms 1120-REIT: 90.7[B]; 
USCCs, all: Number: Forms 1120-REIT: 974; 
USCCs, all: Percentage: Forms 1120-REIT: 93.8[B]; 
FCDCs, large: Number: Forms 1120-REIT: 18; 
FCDCs, large: Percentage: Forms 1120-REIT: 85.7[B]; 
USCCs, large: Number: Forms 1120-REIT: 341; 
USCCs, large: Percentage: Forms 1120-REIT: 95.0[B]. 

Tax year: 2000; 
FCDCs, all: Number: Forms 1120-REIT: 30; 
FCDCs, all: Percentage: Forms 1120-REIT: 83.3[B]; 
USCCs, all: Number: Forms 1120-REIT: 995; 
USCCs, all: Percentage: Forms 1120-REIT: 93.6[B]; 
FCDCs, large: Number: Forms 1120-REIT: 17; 
FCDCs, large: Percentage: Forms 1120-REIT: 85.0[B]; 
USCCs, large: Number: Forms 1120-REIT: 327; 
USCCs, large: Percentage: Forms 1120-REIT: 94.0[B]. 

Tax year: 2001; 
FCDCs, all: Number: Forms 1120-REIT: 47; 
FCDCs, all: Percentage: Forms 1120-REIT: 94.0[B]; 
USCCs, all: Number: Forms 1120-REIT: 930; 
USCCs, all: Percentage: Forms 1120-REIT: 94.8[B]; 
FCDCs, large: Number: Forms 1120-REIT: 21; 
FCDCs, large: Percentage: Forms 1120-REIT: 95.5[B]; 
USCCs, large: Number: Forms 1120-REIT: 333; 
USCCs, large: Percentage: Forms 1120-REIT: 95.4[B]. 

Tax year: 2002; 
FCDCs, all: Number: Forms 1120-REIT: 46; 
FCDCs, all: Percentage: Forms 1120-REIT: 90.2[B]; 
USCCs, all: Number: Forms 1120-REIT: 989; 
USCCs, all: Percentage: Forms 1120-REIT: 95.2[B]; 
FCDCs, large: Number: Forms 1120-REIT: 19; 
FCDCs, large: Percentage: Forms 1120-REIT: 95.0[B]; 
USCCs, large: Number: Forms 1120-REIT: 375; 
USCCs, large: Percentage: Forms 1120-REIT: 94.9[B]. 

Tax year: 2003; 
FCDCs, all: Number: Forms 1120-REIT: 42; 
FCDCs, all: Percentage: Forms 1120-REIT: 87.4[B]; 
USCCs, all: Number: Forms 1120-REIT: 965; 
USCCs, all: Percentage: Forms 1120-REIT: 95.5[B]; 
FCDCs, large: Number: Forms 1120-REIT: 19; 
FCDCs, large: Percentage: Forms 1120-REIT: 86.4[B]; 
USCCs, large: Number: Forms 1120-REIT: 387; 
USCCs, large: Percentage: Forms 1120-REIT: 94.6[B]. 

Tax year: 2004; 
FCDCs, all: Number: Forms 1120-REIT: 48; 
FCDCs, all: Percentage: Forms 1120-REIT: 96.0[B]; 
USCCs, all: Number: Forms 1120-REIT: 1,008; 
USCCs, all: Percentage: Forms 1120-REIT: 94.0[B]; 
FCDCs, large: Number: Forms 1120-REIT: 26; 
FCDCs, large: Percentage: Forms 1120-REIT: 96.3[B]; 
USCCs, large: Number: Forms 1120-REIT: 407; 
USCCs, large: Percentage: Forms 1120-REIT: 93.1[B]. 

Tax year: 2005; 
FCDCs, all: Number: Forms 1120-REIT: 76; 
FCDCs, all: Percentage: Forms 1120-REIT: 96.2[B]; 
USCCs, all: Number: Forms 1120-REIT: 1,104; 
USCCs, all: Percentage: Forms 1120-REIT: 94.4[B]; 
FCDCs, large: Number: Forms 1120-REIT: 33; 
FCDCs, large: Percentage: Forms 1120-REIT: 97.1[B]; 
USCCs, large: Number: Forms 1120-REIT: 430; 
USCCs, large: Percentage: Forms 1120-REIT: 92.7[B]. 

Tax year: 1998; 
FCDCs, all: Number: Forms 1120-RIC: 86; 
FCDCs, all: Percentage: Forms 1120-RIC: 100.0[B]; 
USCCs, all: Number: Forms 1120-RIC: 9,730; 
USCCs, all: Percentage: Forms 1120-RIC: 99.2[B]; 
FCDCs, large: Number: Forms 1120-RIC: 11; 
FCDCs, large: Percentage: Forms 1120-RIC: 100.0[B]; 
USCCs, large: Number: Forms 1120-RIC: 3,299; 
USCCs, large: Percentage: Forms 1120-RIC: 99.5[B]. 

Tax year: 1999; 
FCDCs, all: Number: Forms 1120-RIC: 93; 
FCDCs, all: Percentage: Forms 1120-RIC: 100.0[B]; 
USCCs, all: Number: Forms 1120-RIC: 10,159; 
USCCs, all: Percentage: Forms 1120-RIC: 99.4[B]; 
FCDCs, large: Number: Forms 1120-RIC: 29; 
FCDCs, large: Percentage: Forms 1120-RIC: 100.0[B]; 
USCCs, large: Number: Forms 1120-RIC: 3,561; 
USCCs, large: Percentage: Forms 1120-RIC: 99.3[B]. 

Tax year: 2000; 
FCDCs, all: Number: Forms 1120-RIC: 103; 
FCDCs, all: Percentage: Forms 1120-RIC: 100.0[B]; 
USCCs, all: Number: Forms 1120-RIC: 10,817; 
USCCs, all: Percentage: Forms 1120-RIC: 99.3[B]; 
FCDCs, large: Number: Forms 1120-RIC: 34; 
FCDCs, large: Percentage: 1Forms 1120-RIC: 00.0[B]; 
USCCs, large: Number: Forms 1120-RIC: 3,732; 
USCCs, large: Percentage: Forms 1120-RIC: 99.4[B]. 

Tax year: 2001; 
FCDCs, all: Number: Forms 1120-RIC: 97; 
FCDCs, all: Percentage: Forms 1120-RIC: 100.0[B]; 
USCCs, all: Number: Forms 1120-RIC: 11,171; 
USCCs, all: Percentage: Forms 1120-RIC: 99.6[B]; 
FCDCs, large: Number: Forms 1120-RIC: 34; 
FCDCs, large: Percentage: Forms 1120-RIC: 100.0[B]; 
USCCs, large: Number: Forms 1120-RIC: 3,739; 
USCCs, large: Percentage: Forms 1120-RIC: 99.5[B]. 

Tax year: 2002; 
FCDCs, all: Number: Forms 1120-RIC: 104; 
FCDCs, all: Percentage: Forms 1120-RIC: 100.0[B]; 
USCCs, all: Number: Forms 1120-RIC: 10,889; 
USCCs, all: Percentage: Forms 1120-RIC: 99.3[B]; 
FCDCs, large: Number: Forms 1120-RIC: 33; 
FCDCs, large: Percentage: Forms 1120-RIC: 100.0[B]; 
USCCs, large: Number: Forms 1120-RIC: 3,663; 
USCCs, large: Percentage: Forms 1120-RIC: 99.2[B]. 

Tax year: 2003; 
FCDCs, all: Number: Forms 1120-RIC: 118; 
FCDCs, all: Percentage: Forms 1120-RIC: 100.0[B]; 
USCCs, all: Number: Forms 1120-RIC: 10,787; 
USCCs, all: Percentage: Forms 1120-RIC: 99.3[B]; 
FCDCs, large: Number: Forms 1120-RIC: 50; 
FCDCs, large: Percentage: Forms 1120-RIC: 100.0[B]; 
USCCs, large: Number: Forms 1120-RIC: 4,093; 
USCCs, large: Percentage: Forms 1120-RIC: 99.1[B]. 

Tax year: 2004; 
FCDCs, all: Number: Forms 1120-RIC: 107; 
FCDCs, all: Percentage: Forms 1120-RIC: 100.0[B]; 
USCCs, all: Number: Forms 1120-RIC: 10,726; 
USCCs, all: Percentage: Forms 1120-RIC: 99.4[B]; 
FCDCs, large: Number: Forms 1120-RIC: 58; 
FCDCs, large: Percentage: Forms 1120-RIC: 100.0[B]; 
USCCs, large: Number: Forms 1120-RIC: 4,309; 
USCCs, large: Percentage: Forms 1120-RIC: 99.2[B]. 

Tax year: 2005; 
FCDCs, all: Number: Forms 1120-RIC: 257; 
FCDCs, all: Percentage: Forms 1120-RIC: 98.8[B]; 
USCCs, all: Number: Forms 1120-RIC: 10,602; 
USCCs, all: Percentage: Forms 1120-RIC: 99.2[B]; 
FCDCs, large: Number: Forms 1120-RIC: 157; 
FCDCs, large: Percentage: Forms 1120-RIC: 99.4[B]; 
USCCs, large: Number: Forms 1120-RIC: 4,437; 
USCCs, large: Percentage: Forms 1120-RIC: 99.2[B]. 

Tax year: 1998; 
FCDCs, all: Number: Forms 1120S: [A]; 
FCDCs, all: Percentage: Forms 1120S: [A]; 
USCCs, all: Number: Forms 1120S: 2,579,022; 
USCCs, all: Percentage: Forms 1120S: 99.6; 
FCDCs, large: Number: Forms 1120S: [A]; 
FCDCs, large: Percentage: Forms 1120S: [A]; 
USCCs, large: Number: Forms 1120S: 8,076; 
USCCs, large: Percentage: Forms 1120S: 93.7. 

Tax year: 1999; 
FCDCs, all: Number: Forms 1120S: [A]; 
FCDCs, all: Percentage: Forms 1120S: [A]; 
USCCs, all: Number: Forms 1120S: 2,716,695; 
USCCs, all: Percentage: Forms 1120S: 99.6; 
FCDCs, large: Number: Forms 1120S: [A]; 
FCDCs, large: Percentage: Forms 1120S: [A]; 
USCCs, large: Number: Forms 1120S: 8,638; 
USCCs, large: Percentage: Forms 1120S: 92.3. 

Tax year: 2000; 
FCDCs, all: Number: Forms 1120S: [A]; 
FCDCs, all: Percentage: Forms 1120S: [A]; 
USCCs, all: Number: Forms 1120S: 2,846,262; 
USCCs, all: Percentage: Forms 1120S: 99.7; 
FCDCs, large: Number: Forms 1120S: [A]; 
FCDCs, large: Percentage: Forms 1120S: [A]; 
USCCs, large: Number: Forms 1120S: 9,453; 
USCCs, large: Percentage: Forms 1120S: 93.8. 

Tax year: 2001; 
FCDCs, all: Number: Forms 1120S: [A]; 
FCDCs, all: Percentage: Forms 1120S: [A]; 
USCCs, all: Number: Forms 1120S: 2,978,696; 
USCCs, all: Percentage: Forms 1120S: 99.8; 
FCDCs, large: Number: Forms 1120S: [A]; 
FCDCs, large: Percentage: Forms 1120S: [A]; 
USCCs, large: Number: Forms 1120S: 9,529; 
USCCs, large: Percentage: Forms 1120S: 94.2. 

Tax year: 2002; 
FCDCs, all: Number: Forms 1120S: [A]; 
FCDCs, all: Percentage: Forms 1120S: [A]; 
USCCs, all: Number: Forms 1120S: 3,144,831; 
USCCs, all: Percentage: Forms 1120S: 99.7; 
FCDCs, large: Number: Forms 1120S: [A]; 
FCDCs, large: Percentage: Forms 1120S: [A]; 
USCCs, large: Number: Forms 1120S: 9,809; 
USCCs, large: Percentage: Forms 1120S: 94.4. 

Tax year: 2003; 
FCDCs, all: Number: Forms 1120S: [A]; 
FCDCs, all: Percentage: Forms 1120S: [A]; 
USCCs, all: Number: Forms 1120S: 3,334,293; 
USCCs, all: Percentage: Forms 1120S: 99.8; 
FCDCs, large: Number: Forms 1120S: [A]; 
FCDCs, large: Percentage: Forms 1120S: [A]; 
USCCs, large: Number: Forms 1120S: 10,651; 
USCCs, large: Percentage: Forms 1120S: 95.1. 

Tax year: 2004; 
FCDCs, all: Number: Forms 1120S: [A]; 
FCDCs, all: Percentage: Forms 1120S: [A]; 
USCCs, all: Number: Forms 1120S: 3,512,014; 
USCCs, all: Percentage: Forms 1120S: 99.8; 
FCDCs, large: Number: Forms 1120S: [A]; 
FCDCs, large: Percentage: Forms 1120S: [A]; 
USCCs, large: Number: Forms 1120S: 12,386; 
USCCs, large: Percentage: Forms 1120S: 95.7. 

Tax year: 2005; 
FCDCs, all: Number: Forms 1120S: [A]; 
FCDCs, all: Percentage: Forms 1120S: [A]; 
USCCs, all: Number: Forms 1120S: 3,674,551; 
USCCs, all: Percentage: Forms 1120S: 99.8; 
FCDCs, large: Number: Forms 1120S: [A]; 
FCDCs, large: Percentage: Forms 1120S: [A]; 
USCCs, large: Number: Forms 1120S: 12,504; 
USCCs, large: Percentage: Forms 1120S: 95.2. 

Source: GAO analysis of IRS data. 

Notes: Percentage estimates for all FCDCs have sampling errors of less 
than (+/-) 17 percentage points; percentage estimates for large FCDCs 
have sampling errors of less than (+/-) 24 percentage points; 
percentage estimates for USCCs have sampling errors of less than (+/-) 
5 percentage points. S corporations, RICs, and REITs are pass-through 
entities that generally incur no corporate tax liability. 

[A] Not applicable--S corporations are prohibited from foreign 
ownership. 

[B] Differences between FCDCs and USCCs are not statistically 
significant. 

[End of table] 

Corporations That Established No Tax Liability by Tax Return Line Item: 

Table 3: FCDCs and USCCs That Established No Tax Liability by Tax 
Return Line Item, Tax Year 2005: 

Tax return line item: Gross profit--line 3; 
Percentage of returns where $0 is first reported: All FCDCs, no tax: 
19.22; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All FCDCs, no tax: [Empty]; 
Percentage of returns where $0 is first reported: All USCCs, no tax: 
8.52; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All USCCs, no tax: [Empty]. 

Tax return line item: Total income--line 11; 
Percentage of returns where $0 is first reported: All FCDCs, no tax: 
14.98; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All FCDCs, no tax: [Empty]; 
Percentage of returns where $0 is first reported: All USCCs, no tax: 
7.05; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All USCCs, no tax: [Empty]. 

Tax return line item: Taxable income before net operating loss 
deductions and special deductions--line 28; 
Percentage of returns where $0 is first reported: All FCDCs, no tax: 
46.35; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All FCDCs, no tax: [Empty]; 
Percentage of returns where $0 is first reported: All USCCs, no tax: 
57.52; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All USCCs, no tax: [Empty]. 

Tax return line item: Net operating loss deduction--line 29a; 
Percentage of returns where $0 is first reported: All FCDCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All FCDCs, no tax: 18.51[B]; 
Percentage of returns where $0 is first reported: All USCCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All USCCs, no tax: 23.47[B]. 

Tax return line item: Special deductions--line 29b; 
Percentage of returns where $0 is first reported: All FCDCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All FCDCs, no tax: 0.18; 
Percentage of returns where $0 is first reported: All USCCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All USCCs, no tax: 0.69. 

Tax return line item: Taxable income--line 30; 
Percentage of returns where $0 is first reported: All FCDCs, no tax: 
18.60[B]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All FCDCs, no tax: [Empty]; 
Percentage of returns where $0 is first reported: All USCCs, no tax: 
23.67[B]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All USCCs, no tax: [Empty]. 

Tax return line item: Income tax--Schedule J, line 3; 
Percentage of returns where $0 is first reported: All FCDCs, no tax: 
0.04; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All FCDCs, no tax: [Empty]; 
Percentage of returns where $0 is first reported: All USCCs, no tax: 
2.18; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All USCCs, no tax: [Empty]. 

Tax return line item: Foreign tax credit--Schedule J, line 6a; 
Percentage of returns where $0 is first reported: All FCDCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All FCDCs, no tax: 0.06[B]; 
Percentage of returns where $0 is first reported: All USCCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All USCCs, no tax: 0.02[B]. 

Tax return line item: General business credit--Schedule J, line 6d; 
Percentage of returns where $0 is first reported: All FCDCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All FCDCs, no tax: 0.73[B]; 
Percentage of returns where $0 is first reported: All USCCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All USCCs, no tax: 0.53[B]. 

Tax return line item: Other credits--Schedule J, lines 6b, c, e, f; 
Percentage of returns where $0 is first reported: All FCDCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All FCDCs, no tax: 0.03[B]; 
Percentage of returns where $0 is first reported: All USCCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All USCCs, no tax: 0.06[B]. 

Tax return line item: Total tax--Schedule J, line 11; 
Percentage of returns where $0 is first reported: All FCDCs, no tax: 
0.81[B]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All FCDCs, no tax: [Empty]; 
Percentage of returns where $0 is first reported: All USCCs, no tax: 
1.07[B]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All USCCs, no tax: [Empty]. 

Tax return line item: Total; 
Percentage of returns where $0 is first reported: All FCDCs, no tax: 
100.00; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All FCDCs, no tax: [Empty]; 
Percentage of returns where $0 is first reported: All USCCs, no tax: 
100.00; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All USCCs, no tax: [Empty]. 

Tax return line item: Gross profit--line 3; 
Percentage of returns where $0 is first reported: Large FCDCs, no tax: 
2.92; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large FCDCs, no tax: [Empty]; 
Percentage of returns where $0 is first reported: Large USCCs, no tax: 
1.28; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large USCCs, no tax: [Empty]. 

Tax return line item: Total income--line 11; 
Percentage of returns where $0 is first reported: Large FCDCs, no tax: 
4.83[B]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large FCDCs, no tax: [Empty]; 
Percentage of returns where $0 is first reported: Large USCCs, no tax: 
4.30[B]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large USCCs, no tax: [Empty]. 

Tax return line item: Taxable income before net operating loss 
deductions and special deductions--line 28; 
Percentage of returns where $0 is first reported: Large FCDCs, no tax: 
79.42[B]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large FCDCs, no tax: [Empty]; 
Percentage of returns where $0 is first reported: Large USCCs, no tax: 
80.44[B]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: All USCCs, no tax: [Empty]. 

Tax return line item: Net operating loss deduction--line 29a; 
Percentage of returns where $0 is first reported: Large FCDCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large FCDCs, no tax: 9.46[B]; 
Percentage of returns where $0 is first reported: Large USCCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large USCCs, no tax: 10.37[B]. 

Tax return line item: Special deductions--line 29b; 
Percentage of returns where $0 is first reported: Large FCDCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large FCDCs, no tax: 1.50[B]; 
Percentage of returns where $0 is first reported: Large USCCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large USCCs, no tax: 1.24[B]. 

Tax return line item: Taxable income--line 30; 
Percentage of returns where $0 is first reported: Large FCDCs, no tax: 
10.11[B]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large FCDCs, no tax: [Empty]; 
Percentage of returns where $0 is first reported: Large USCCs, no tax: 
10.62[B]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large USCCs, no tax: [Empty]. 

Tax return line item: Income tax--Schedule J, line 3; 
Percentage of returns where $0 is first reported: Large FCDCs, no tax: 
0.00[B]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large FCDCs, no tax: [Empty]; 
Percentage of returns where $0 is first reported: Large USCCs, no tax: 
0.14[B]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large USCCs, no tax: [Empty]. 

Tax return line item: Foreign tax credit--Schedule J, line 6a; 
Percentage of returns where $0 is first reported: Large FCDCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large FCDCs, no tax: 1.90[B]; 
Percentage of returns where $0 is first reported: Large USCCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large USCCs, no tax: 2.20[B]. 

Tax return line item: General business credit--Schedule J, line 6d; 
Percentage of returns where $0 is first reported: Large FCDCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large FCDCs, no tax: 0.00; 
Percentage of returns where $0 is first reported: Large USCCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large USCCs, no tax: 0.72. 

Tax return line item: Other credits--Schedule J, lines 6b, c, e, f; 
Percentage of returns where $0 is first reported: Large FCDCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large FCDCs, no tax: 1.00[B]; 
Percentage of returns where $0 is first reported: Large USCCs, no tax: 
[Empty]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large USCCs, no tax: 1.16[B]. 

Tax return line item: Total tax--Schedule J, line 11; 
Percentage of returns where $0 is first reported: Large FCDCs, no tax: 
2.72[B]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large FCDCs, no tax: [Empty]; 
Percentage of returns where $0 is first reported: Large USCCs, no tax: 
3.22[B]; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large USCCs, no tax: [Empty]. 

Tax return line item: Total; 
Percentage of returns where $0 is first reported: Large FCDCs, no tax: 
100.00; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large FCDCs, no tax: [Empty]; 
Percentage of returns where $0 is first reported: Large USCCs, no tax: 
100.00; 
Percentage of returns for line item where deduction or credit was 
reported[A]: Large USCCs, no tax: [Empty]. 

Source: GAO analysis of IRS data. 

Note: Percentage estimates for all FCDCs have sampling errors of less 
than (+/-) 6 percentage points; percentage estimates for large FCDCs 
and USCCs have sampling errors of less than (+/-) 2 percentage points. 

[A] These percentages will not total to the corresponding tax return 
line item percentage since corporations can report multiple deductions 
and credits. 

[B] Differences between FCDCs and USCCs are not statistically 
significant. 

[End of table] 

Figure 8: Percentage of Total Deductions for FCDCs and USCCs That First 
Established No Tax Liability on Line 28, Tax Year 2005: 

This figure is a copy of a tax return showing the percentage of total 
deductions for FCDCs and USCCs that first established no tax liability 
on line 28, tax year 2005. 

[See PDF for image] 

Source: GAO analysis of IRS information. 

Notes: Percentages do not total to 100 due to rounding. All estimates 
have sampling errors of less than (+/-) .3 percentage points. Figure 8 
reports the share of each type of deduction in total deductions for 
corporations that first established no tax liability on line 28 on 
their returns. For example, the figure shows that 18.3 percent of the 
total deductions claimed by FCDCs that reported zero taxable income on 
line 28 were deductions for interest expense. 

[End of figure] 

Average Gross Receipts and Tax Liabilities: 

Table 4: FCDCs and USCCs Average Gross Receipts and Tax Liabilities, 
Tax Year 2005: 

Distribution by income tax liability: ; Number of returns: ; Percentage 
of returns: ; Average gross receipts (dollars in millions): ; Average 
tax liability (dollars in millions): ; Tax liability/ $1,000 gross 
receipts (dollars in millions): ; Tax liability/ $1,000 total income 
(dollars in millions): ; Tax liability/ $1,000 assets (dollars in 
millions): . 

Distribution by income tax liability: No tax Liability: All FCDCs; 
Number of returns: 38,483; 
Percentage of returns: 65.2[B]; 
Average gross receipts (dollars in millions): $11.30; 
Average tax liability (dollars in millions): [A]; 
Tax liability/ $1,000 gross receipts (dollars in millions): [A]; 
Tax liability/ $1,000 total income (dollars in millions): [A]; 
Tax liability/ $1,000 assets (dollars in millions): [A]. 

Distribution by income tax liability: No tax Liability: All USCCs; 
Number of returns: 1,263,726; 
Percentage of returns: 66.7[B]; 
Average gross receipts (dollars in millions): $1.65; 
Average tax liability (dollars in millions): [A]; 
Tax liability/ $1,000 gross receipts (dollars in millions): [A]; 
Tax liability/ $1,000 total income (dollars in millions): [A]; 
Tax liability/ $1,000 assets (dollars in millions): [A]. 

Distribution by income tax liability: No tax Liability: Large FCDCs; 
Number of returns: 998; 
Percentage of returns: 28.0; 
Average gross receipts (dollars in millions): $373.09; 
Average tax liability (dollars in millions): [A]; 
Tax liability/ $1,000 gross receipts (dollars in millions): [A]; 
Tax liability/ $1,000 total income (dollars in millions): [A]; 
Tax liability/ $1,000 assets (dollars in millions): [A]. 

Distribution by income tax liability: No tax Liability: Large USCCs; 
Number of returns: 3,565; 
Percentage of returns: 25.2; 
Average gross receipts (dollars in millions): $303.45; 
Average tax liability (dollars in millions): [A]; 
Tax liability/ $1,000 gross receipts (dollars in millions): [A]; 
Tax liability/ $1,000 total income (dollars in millions): [A]; 
Tax liability/ $1,000 assets (dollars in millions): [A]. 

Distribution by income tax liability: 1 or more but less than $100,000: 
All FCDCs; 
Number of returns: 14,035; 
Percentage of returns: 23.8; 
Average gross receipts (dollars in millions): $10.02; 
Average tax liability (dollars in millions): $0.02; 
Tax liability/ $1,000 gross receipts (dollars in millions): $1.69; 
Tax liability/ $1,000 total income (dollars in millions): $5.00; 
Tax liability/ $1,000 assets (dollars in millions): $1.33. 

Distribution by income tax liability: 1 or more but less than $100,000: 
All USCCs; 
Number of returns: 594,094; 
Percentage of returns: 31.4; 
Average gross receipts (dollars in millions): $1.92; 
Average tax liability (dollars in millions): $0.01; 
Tax liability/ $1,000 gross receipts (dollars in millions): $3.64; 
Tax liability/ $1,000 total income (dollars in millions): $8.20; 
Tax liability/ $1,000 assets (dollars in millions): $5.49. 

Distribution by income tax liability: 1 or more but less than $100,000: 
Large FCDCs; 
Number of returns: 378; 
Percentage of returns: 10.6; 
Average gross receipts (dollars in millions): $263.18; 
Average tax liability (dollars in millions): $0.04; 
Tax liability/ $1,000 gross receipts (dollars in millions): $0.16; 
Tax liability/ $1,000 total income (dollars in millions): $0.53; 
Tax liability/ $1,000 assets (dollars in millions): $0.12. 

Distribution by income tax liability: 1 or more but less than $100,000: 
Large USCCs; 
Number of returns: 1,755; 
Percentage of returns: 12.4; 
Average gross receipts (dollars in millions): $114.12; 
Average tax liability (dollars in millions): $0.04; 
Tax liability/ $1,000 gross receipts (dollars in millions): $0.33; 
Tax liability/ $1,000 total income (dollars in millions): $0.94; 
Tax liability/ $1,000 assets (dollars in millions): $0.20. 

Distribution by income tax liability: $100,000 or more but less than $1 
million: All FCDCs; 
Number of returns: 4,459; 
Percentage of returns: 7.6; 
Average gross receipts (dollars in millions): $56.07; 
Average tax liability (dollars in millions): $0.35; 
Tax liability/ $1,000 gross receipts (dollars in millions): $6.26; 
Tax liability/ $1,000 total income (dollars in millions): $18.56; 
Tax liability/ $1,000 assets (dollars in millions): $4.86. 

Distribution by income tax liability: $100,000 or more but less than $1 
million: All USCCs; 
Number of returns: 29,636; 
Percentage of returns: 1.6; 
Average gross receipts (dollars in millions): $27.73; 
Average tax liability (dollars in millions): $0.30; 
Tax liability/ $1,000 gross receipts (dollars in millions): $10.67; 
Tax liability/ $1,000 total income (dollars in millions): $25.10; 
Tax liability/ $1,000 assets (dollars in millions): $7.56. 

Distribution by income tax liability: $100,000 or more but less than $1 
million: Large FCDCs; 
Number of returns: 785; 
Percentage of returns: 22.0; 
Average gross receipts (dollars in millions): $263.56; 
Average tax liability (dollars in millions): $0.45[B]; 
Tax liability/ $1,000 gross receipts (dollars in millions): $1.70; 
Tax liability/ $1,000 total income (dollars in millions): $5.37; 
Tax liability/ $1,000 assets (dollars in millions): $1.27. 

Distribution by income tax liability: $100,000 or more but less than $1 
million: Large USCCs; 
Number of returns: 3,367; 
Percentage of returns: 23.8; 
Average gross receipts (dollars in millions): $157.90; 
Average tax liability (dollars in millions): $0.45[B]; 
Tax liability/ $1,000 gross receipts (dollars in millions): $2.85; 
Tax liability/ $1,000 total income (dollars in millions): $7.35; 
Tax liability/ $1,000 assets (dollars in millions): $2.08. 

Distribution by income tax liability: $1 million or more: All FCDCs; 
Number of returns: 2,043; 
Percentage of returns: 3.5; 
Average gross receipts (dollars in millions): $828.14; 
Average tax liability (dollars in millions): $16.17; 
Tax liability/ $1,000 gross receipts (dollars in millions): $19.52; 
Tax liability/ $1,000 total income (dollars in millions): $49.22; 
Tax liability/ $1,000 assets (dollars in millions): $6.99. 

Distribution by income tax liability: $1 million or more: All USCCs; 
Number of returns: 7,364; 
Percentage of returns: 0.4; 
Average gross receipts (dollars in millions): $615.83; 
Average tax liability (dollars in millions): $18.06; 
Tax liability/ $1,000 gross receipts (dollars in millions): $29.33; 
Tax liability/ $1,000 total income (dollars in millions): $48.37; 
Tax liability/ $1,000 assets (dollars in millions): $11.10. 

Distribution by income tax liability: $1 million or more: Large FCDCs; 
Number of returns: 1,403; 
Percentage of returns: 39.4[B]; 
Average gross receipts (dollars in millions): $1,199.48; 
Average tax liability (dollars in millions): $22.28; 
Tax liability/ $1,000 gross receipts (dollars in millions): $18.58; 
Tax liability/ $1,000 total income (dollars in millions): $47.41; 
Tax liability/ $1,000 assets (dollars in millions): $6.65. 

Distribution by income tax liability: $1 million or more: Large USCCs; 
Number of returns: 5,446; 
Percentage of returns: 38.5[B]; 
Average gross receipts (dollars in millions): $826.24; 
Average tax liability (dollars in millions): $23.55; 
Tax liability/ $1,000 gross receipts (dollars in millions): $28.50; 
Tax liability/ $1,000 total income (dollars in millions): $47.31; 
Tax liability/ $1,000 assets (dollars in millions): $10.79. 

Distribution by income tax liability: Total: All FCDCs; 
Number of returns: 59,020; 
Percentage of returns: 100.0; 
Average gross receipts (dollars in millions): $42.66; 
Average tax liability (dollars in millions): $0.59; 
Tax liability/ $1,000 gross receipts (dollars in millions): $13.84; 
Tax liability/ $1,000 total income (dollars in millions): $36.78; 
Tax liability/ $1,000 assets (dollars in millions): $5.91. 

Distribution by income tax liability: Total: All USCCs; 
Number of returns: 1,894,819; 
Percentage of returns: 100.0; 
Average gross receipts (dollars in millions): $4.53; 
Average tax liability (dollars in millions): $0.08; 
Tax liability/ $1,000 gross receipts (dollars in millions): $17.01; 
Tax liability/ $1,000 total income (dollars in millions): $31.11; 
Tax liability/ $1,000 assets (dollars in millions): $8.59. 

Distribution by income tax liability: Total: Large FCDCs; 
Number of returns: 3,563; 
Percentage of returns: 100.0; 
Average gross receipts (dollars in millions): $662.61; 
Average tax liability (dollars in millions): $8.88; 
Tax liability/ $1,000 gross receipts (dollars in millions): $13.39; 
Tax liability/ $1,000 total income (dollars in millions): $36.08; 
Tax liability/ $1,000 assets (dollars in millions): $5.56. 

Distribution by income tax liability: Total: Large USCCs; 
Number of returns: 14,132; 
Percentage of returns: 100.0; 
Average gross receipts (dollars in millions): $446.72; 
Average tax liability (dollars in millions): $9.19; 
Tax liability/ $1,000 gross receipts (dollars in millions): $20.56; 
Tax liability/ $1,000 total income (dollars in millions): $36.77; 
Tax liability/ $1,000 assets (dollars in millions): $8.43. 

Source: GAO analysis of IRS data. 

Note: Estimates in the second column have sampling errors of less than 
(+/-) 4 percentage points; estimates in the third column have sampling 
errors of less than (+/-) $24 million dollars; estimates in the fourth, 
fifth, and seventh columns have sampling errors of less than (+/-) $0.5 
million dollars; estimates in the sixth column have sampling errors of 
less than (+/-) $1.2 million dollars. 

[A] Not applicable. 

[B] Differences between FCDCs and USCCs are not statistically 
significant. 

[End of table] 

Corporations That Were New: 

Table 5: Percentage of FCDCs and USCCs That Were New, Tax Years 1998 
through 2005: 

Tax year: 1998; 
FCDCs, all: 26.1; 
USCCs, all: 20.2; 
FCDCs, large: 11.9; 
USCCs, large: 10.4. 

Tax year: 1999; 
FCDCs, all: 25.4; 
USCCs, all: 19.4; 
FCDCs, large: 13.5; 
USCCs, large: 10.1. 

Tax year: 2000; 
FCDCs, all: 23.7; 
USCCs, all: 18.4; 
FCDCs, large: 13.6; 
USCCs, large: 9.1. 

Tax year: 2001; 
FCDCs, all: 21.9[A]; 
USCCs, all: 19.4[A]; 
FCDCs, large: 14.0; 
USCCs, large: 8.2. 

Tax year: 2002; 
FCDCs, all: 23.6[A]; 
USCCs, all: 19.1[A]; 
FCDCs, large: 11.2; 
USCCs, large: 7.2. 

Tax year: 2003; 
FCDCs, all: 19.8[A]; 
USCCs, all: 18.5[A]; 
FCDCs, large: 10.0; 
USCCs, large: 6.6. 

Tax year: 2004; 
FCDCs, all: 19.9[A]; 
USCCs, all: 18.1[A]; 
FCDCs, large: 9.5; 
USCCs, large: 7.1. 

Tax year: 2005; 
FCDCs, all: 22.2[A]; 
USCCs, all: 18.8[A]; 
FCDCs, large: 9.1; 
USCCs, large: 8.0. 

Source: GAO analysis of IRS data. 

Note: Percentage estimates for all FCDCs have sampling errors of less 
than (+/-) 5 percentage points; percentage estimates for large FCDCs 
have sampling errors of less than (+/-) 2 percentage points; USCCs have 
sampling errors of less than (+/-) 1 percentage point. 

[A] Differences between FCDCs and USCCs are not statistically 
significant. 

[End of table] 

Cost Ratios by Major Industry: 

Table 6: FCDCs and USCCs Cost Ratios by Major Industry, Tax Year 2005: 

Industry: All FCDCs: Manufacturing; 
Cost of goods sold as a percentage of gross receipts: All: 77.8; 
Cost of goods sold as a percentage of gross receipts: No tax: 77.4; 
Purchases as a percentage of gross receipts: All: 65.6; 
Purchases as a percentage of gross receipts: No tax: 55.8; Interest as 
a percentage of gross receipts: All: 2.3; Interest as a percentage of 
gross receipts: No tax: 3.6. 

Industry: All FCDCs: Wholesale trade; 
Cost of goods sold as a percentage of gross receipts: All: 82.2; 
Cost of goods sold as a percentage of gross receipts: No tax: 84.9; 
Purchases as a percentage of gross receipts: All: 76.1; 
Purchases as a percentage of gross receipts: No tax: 76.2; 
Interest as a percentage of gross receipts: All: 1.0; 
Interest as a percentage of gross receipts: No tax: 1.0. 

Industry: All FCDCs: Financial services; 
Cost of goods sold as a percentage of gross receipts: All: 10.3[A]; 
Cost of goods sold as a percentage of gross receipts: No tax: 26.7; 
Purchases as a percentage of gross receipts: All: 5.2; 
Purchases as a percentage of gross receipts: No tax: 17.4; 
Interest as a percentage of gross receipts: All: 156.6; 
Interest as a percentage of gross receipts: No tax: 68.5. 

Industry: All FCDCs: Nonfinancial services; 
Cost of goods sold as a percentage of gross receipts: All: 41.2; 
Cost of goods sold as a percentage of gross receipts: No tax: 37.0; 
Purchases as a percentage of gross receipts: All: 15.4; 
Purchases as a percentage of gross receipts: No tax: 14.8; 
Interest as a percentage of gross receipts: All: 3.6; 
Interest as a percentage of gross receipts: No tax: 5.1. 

Industry: All FCDCs: Retail trade; 
Cost of goods sold as a percentage of gross receipts: All: 71.7[A]; 
Cost of goods sold as a percentage of gross receipts: No tax: 79.9; 
Purchases as a percentage of gross receipts: All: 67.0; 
Purchases as a percentage of gross receipts: No tax: 79.4; 
Interest as a percentage of gross receipts: All: 1.1; 
Interest as a percentage of gross receipts: No tax: 1.2. 

Industry: All FCDCs: Other; 
Cost of goods sold as a percentage of gross receipts: All: 53.7; 
Cost of goods sold as a percentage of gross receipts: No tax: 54.2[A]; 
Purchases as a percentage of gross receipts: All: 19.1; 
Purchases as a percentage of gross receipts: No tax: 13.6; 
Interest as a percentage of gross receipts: All: 5.2; 
Interest as a percentage of gross receipts: No tax: 7.1. 

Industry: All FCDCs: Total; 
Cost of goods sold as a percentage of gross receipts: All: 73.1; 
Cost of goods sold as a percentage of gross receipts: No tax: 71.4; 
Purchases as a percentage of gross receipts: All: 60.4; 
Purchases as a percentage of gross receipts: No tax: 51.3; 
Interest as a percentage of gross receipts: All: 6.0; 
Interest as a percentage of gross receipts: No tax: 4.6. 

Industry: All USCCs: Manufacturing; 
Cost of goods sold as a percentage of gross receipts: All: 69.8; 
Cost of goods sold as a percentage of gross receipts: No tax: 72.6; 
Purchases as a percentage of gross receipts: All: 48.7; Purchases as a 
percentage of gross receipts: No tax: 51.6; Interest as a percentage of 
gross receipts: All: 2.6; Interest as a percentage of gross receipts: 
No tax: 4.0. 

Industry: All USCCs: Wholesale trade; 
Cost of goods sold as a percentage of gross receipts: All: 80.6; 
Cost of goods sold as a percentage of gross receipts: No tax: 79.6; 
Purchases as a percentage of gross receipts: All: 74.9; 
Purchases as a percentage of gross receipts: No tax: 71.3; 
Interest as a percentage of gross receipts: All: 0.9; 
Interest as a percentage of gross receipts: No tax: 1.2. 

Industry: All USCCs: Financial services; 
Cost of goods sold as a percentage of gross receipts: All: 10.6[A]; 
Cost of goods sold as a percentage of gross receipts: No tax: 13.9; 
Purchases as a percentage of gross receipts: All: 3.5; 
Purchases as a percentage of gross receipts: No tax: 4.8; 
Interest as a percentage of gross receipts: All: 87.0; 
Interest as a percentage of gross receipts: No tax: 45.2. 

Industry: All USCCs: Nonfinancial services; 
Cost of goods sold as a percentage of gross receipts: All: 26.5; 
Cost of goods sold as a percentage of gross receipts: No tax: 23.9; 
Purchases as a percentage of gross receipts: All: 10.5; 
Purchases as a percentage of gross receipts: No tax: 10.3; 
Interest as a percentage of gross receipts: All: 1.9; 
Interest as a percentage of gross receipts: No tax: 2.0. 

Industry: All USCCs: Retail trade; 
Cost of goods sold as a percentage of gross receipts: All: 71.5[ A]; 
Cost of goods sold as a percentage of gross receipts: No tax: 74.8; 
Purchases as a percentage of gross receipts: All: 68.3; 
Purchases as a percentage of gross receipts: No tax: 70.4; 
Interest as a percentage of gross receipts: All: 0.9; 
Interest as a percentage of gross receipts: No tax: 1.0. 

Industry: All USCCs: Other; 
Cost of goods sold as a percentage of gross receipts: All: 51.8; 
Cost of goods sold as a percentage of gross receipts: No tax: 52.5[ A]; 
Purchases as a percentage of gross receipts: All: 23.2; 
Purchases as a percentage of gross receipts: No tax: 20.8; 
Interest as a percentage of gross receipts: All: 4.1; 
Interest as a percentage of gross receipts: No tax: 5.0. 

Industry: All USCCs: Total; 
Cost of goods sold as a percentage of gross receipts: All: 59.5; 
Cost of goods sold as a percentage of gross receipts: No tax: 54.6; 
Purchases as a percentage of gross receipts: All: 42.8; 
Purchases as a percentage of gross receipts: No tax: 36.3; 
Interest as a percentage of gross receipts: All: 5.5; 
Interest as a percentage of gross receipts: No tax: 4.9. 

Industry: Large FCDCs: Manufacturing; 
Cost of goods sold as a percentage of gross receipts: All: 77.9; 
Cost of goods sold as a percentage of gross receipts: No tax: 77.4; 
Purchases as a percentage of gross receipts: All: 66.0; 
Purchases as a percentage of gross receipts: No tax: 55.7; 
Interest as a percentage of gross receipts: All: 2.3; 
Interest as a percentage of gross receipts: No tax: 3.8. 

Industry: Large FCDCs: Wholesale trade; 
Cost of goods sold as a percentage of gross receipts: All: 82.6; 
Cost of goods sold as a percentage of gross receipts: No tax: 87.3; 
Purchases as a percentage of gross receipts: All: 76.4[ A]; 
Purchases as a percentage of gross receipts: No tax: 77.5; 
Interest as a percentage of gross receipts: All: 1.1; 
Interest as a percentage of gross receipts: No tax: 1.1. 

Industry: Large FCDCs: Financial services; 
Cost of goods sold as a percentage of gross receipts: All: 9.4[ A]; 
Cost of goods sold as a percentage of gross receipts: No tax: 31.2; 
Purchases as a percentage of gross receipts: All: 4.9; 
Purchases as a percentage of gross receipts: No tax: 20.5; 
Interest as a percentage of gross receipts: All: 173.1; 
Interest as a percentage of gross receipts: No tax: 82.2[ A]. 

Industry: Large FCDCs: Nonfinancial services; 
Cost of goods sold as a percentage of gross receipts: All: 42.3; 
Cost of goods sold as a percentage of gross receipts: No tax: 37.4; 
Purchases as a percentage of gross receipts: All: 15.5; 
Purchases as a percentage of gross receipts: No tax: 15.2; 
Interest as a percentage of gross receipts: All: 3.9; 
Interest as a percentage of gross receipts: No tax: 5.6. 

Industry: Large FCDCs: Retail trade; 
Cost of goods sold as a percentage of gross receipts: All: 72.4; 
Cost of goods sold as a percentage of gross receipts: No tax: 82.8; 
Purchases as a percentage of gross receipts: All: 67.8[ A]; 
Purchases as a percentage of gross receipts: No tax: 83.2; 
Interest as a percentage of gross receipts: All: 1.1; 
Interest as a percentage of gross receipts: No tax: 1.3[ A]. 

Industry: Large FCDCs: Other; 
Cost of goods sold as a percentage of gross receipts: All: 53.9; 
Cost of goods sold as a percentage of gross receipts: No tax: 54.1; 
Purchases as a percentage of gross receipts: All: 19.1; 
Purchases as a percentage of gross receipts: No tax: 12.3; 
Interest as a percentage of gross receipts: All: 5.5; 
Interest as a percentage of gross receipts: No tax: 7.7. 

Industry: Large FCDCs: Total; 
Cost of goods sold as a percentage of gross receipts: All: 73.6; 
Cost of goods sold as a percentage of gross receipts: No tax: 72.3; 
Purchases as a percentage of gross receipts: All: 61.1; 
Purchases as a percentage of gross receipts: No tax: 51.4; 
Interest as a percentage of gross receipts: All: 6.2; 
Interest as a percentage of gross receipts: No tax: 4.8. 

Industry: Large USCCs: Manufacturing; 
Cost of goods sold as a percentage of gross receipts: All: 70.3; 
Cost of goods sold as a percentage of gross receipts: No tax: 74.5; 
Purchases as a percentage of gross receipts: All: 49.3; 
Purchases as a percentage of gross receipts: No tax: 54.4; 
Interest as a percentage of gross receipts: All: 2.7; 
Interest as a percentage of gross receipts: No tax: 4.5. 

Industry: Large USCCs: Wholesale trade; 
Cost of goods sold as a percentage of gross receipts: All: 82.3; 
Cost of goods sold as a percentage of gross receipts: No tax: 83.2; 
Purchases as a percentage of gross receipts: All: 76.0[ A]; 
Purchases as a percentage of gross receipts: No tax: 72.4; 
Interest as a percentage of gross receipts: All: 1.0; 
Interest as a percentage of gross receipts: No tax: 1.4. 

Industry: Large USCCs: Financial services; 
Cost of goods sold as a percentage of gross receipts: All: 8.9[ A]; 
Cost of goods sold as a percentage of gross receipts: No tax: 11.5; 
Purchases as a percentage of gross receipts: All: 3.3; 
Purchases as a percentage of gross receipts: No tax: 5.1; 
Interest as a percentage of gross receipts: All: 129.2; 
Interest as a percentage of gross receipts: No tax: 86.9[ A]. 

Industry: Large USCCs: Nonfinancial services; 
Cost of goods sold as a percentage of gross receipts: All: 30.3; 
Cost of goods sold as a percentage of gross receipts: No tax: 29.7; 
Purchases as a percentage of gross receipts: All: 10.1; 
Purchases as a percentage of gross receipts: No tax: 9.7; 
Interest as a percentage of gross receipts: All: 2.9; 
Interest as a percentage of gross receipts: No tax: 3.9. 

Industry: Large USCCs: Retail trade; 
Cost of goods sold as a percentage of gross receipts: All: 70.3; 
Cost of goods sold as a percentage of gross receipts: No tax: 74.7; 
Purchases as a percentage of gross receipts: All: 67.3[ A]; 
Purchases as a percentage of gross receipts: No tax: 70.7; 
Interest as a percentage of gross receipts: All: 1.0; 
Interest as a percentage of gross receipts: No tax: 1.2[ A]. 

Industry: Large USCCs: Other; 
Cost of goods sold as a percentage of gross receipts: All: 48.9; 
Cost of goods sold as a percentage of gross receipts: No tax: 48.6; 
Purchases as a percentage of gross receipts: All: 22.3; 
Purchases as a percentage of gross receipts: No tax: 18.2; 
Interest as a percentage of gross receipts: All: 5.2; 
Interest as a percentage of gross receipts: No tax: 7.2. 

Industry: Large USCCs: Total; 
Cost of goods sold as a percentage of gross receipts: All: 61.5; 
Cost of goods sold as a percentage of gross receipts: No tax: 59.0; 
Purchases as a percentage of gross receipts: All: 44.4; 
Purchases as a percentage of gross receipts: No tax: 38.4; 
Interest as a percentage of gross receipts: All: 6.9; 
Interest as a percentage of gross receipts: No tax: 7.7. 

Source: GAO analysis of IRS data. 

Note: All estimates have sampling errors of less than (+/-) 6 
percentage points. 

[A] Differences between FCDCs and USCCs are not statistically 
significant. 

[End of table] 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

James R. White, (202) 512-9110 or [email protected]: 

Acknowledgments: 

In addition to the contact person named above, Kevin Daly, Assistant 
Director; Amy Bowser; Sara Daleski; Laurie King; Donna Miller; and John 
Mingus made key contributions to this report. 

[End of section] 

Footnotes: 

[1] Transfer pricing is the pricing of intercompany transactions that 
affects the distribution of profits, and therefore, taxable income 
among related companies and sometimes across tax jurisdictions. Our 
previous reports are: GAO, International Taxation: Taxes of Foreign-and 
U.S.-Controlled Corporations, GAO/GGD-93-112FS (Washington, D.C.: June 
11, 1993); Tax Administration: Foreign-and U.S.-Controlled Corporations 
That Did Not Pay U.S. Income Taxes, 1989-95, GAO/GGD-99-39 (Washington, 
D.C.: Mar. 23, 1999); and Tax Administration: Comparison of the 
Reported Tax Liabilities of Foreign-and U.S.-Controlled Corporations, 
1996-2000, GAO-04-358 (Washington, D.C.: Feb. 27, 2004). 

[2] For purposes of this report, an FCDC is a U.S. corporation in which 
foreign individuals or entities own at least 50 percent of the 
corporation's voting stock. 

[3] Harry Grubert, "Another Look at the Low Taxable Income of Foreign- 
Controlled Companies in the United States," Tax Notes International 
(Dec. 8, 1997), pp. 1,873-97; and David S. Laster and Robert N. 
McCauley, "Making Sense of the Profits of Foreign Firms in the United 
States," Federal Reserve Bank of New York Quarterly Review (Summer-Fall 
1994). 

[4] For examples of studies using direct methods, see Kimberly 
Clausing, "Tax Motivated Transfer Pricing and U.S. Intrafirm Trade 
Prices," Journal of Public Economics (2003) pp. 2207 - 2223, and Andrew 
Bernard, J. Jensen and Peter Schott, "Transfer Pricing by U.S.-Based 
Multinational Firms," NBER working paper 12493 (August 2006). For 
examples of indirect methods, see James Hines, "Tax Policy and the 
Activities of Multinational Corporations," NBER working paper 5589 (May 
1996), pp. 25-30. 

[5] This is the only line on the tax return shown in figure 3 with a 
statistically significant difference between the percentage of large 
FCDCs and USCCs first reporting zero dollars. 

[6] Other deductions are all allowable deductions that are not 
deductible elsewhere on Form 1120. These include travel, meals, and 
entertainment expenses; dividends paid in cash on stock held by 
employee stock ownership plans; insurance premiums; and legal and 
professional fees. 

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