Kilroy Was Here
February 14, 2003
Corporate Weasel Watch Update: Tax Evasion and Large Corporations
Yesterday, NPR's All Things Considered had three stories on Tax Evasion and large corporations. Here's some interesting notes I took from these reports.

In ATC's Enron story:

In ATC's Sprint story:

Most importantly, ATC had a great short segment on the growing gap between the income reported to the markets (book income) and the income reported to the IRS (tax income). Corporations keep two sets of books: one which emphasizes their income to justify higher stock prices from capital markets, and one which limits their income as much as possible to limit their tax responsibilty.

The IRS estimates a gap between reported book income and reported tax income of over $155 billion dollars in the last year. As the chart to the left shows, most of this gap is created by the largest companies. This is because the largest companies are able to take advantage of some of the differing rules (i.e. options). Also, since evading your tax responsibility can be complicated, it takes a significant amount of money to structure these complex tax shelters.

If we eliminated the different tax and book accounting rules and just had corporations report one set of books, we could have more credibility and more oversight on the finances our public companies report to the street.

Something we desperately need these days.

Here's a link to a paper by Harvard's Mihir A. Desai on the growing gap between book and tax income: (

From Slate's discussion of this paper:

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