TAX

ADMINISTRATION

Foreign- and U.S.-

Controlled

Corporations That Did

Not Pay U.S. Income

Taxes, 1989-95

United States General Accounting Office

GAO Report to the Honorable Byron L.

Dorgan, U.S. Senate

March 1999

GAO/GGD-99-39

United States

General Accounting Office

Washington, D.C. 20548

General Government Division

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Page 1 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

GAO

March 23, 1999

The Honorable Byron L. Dorgan

United States Senate

Dear Senator Dorgan:

Based on your long-standing concerns about whether foreign-controlled

corporations (FCC) are abusing transfer prices and not paying income tax,

you asked us to update our 1995 work on the nonpayment of U.S. income

taxes by FCCs and U.S.-controlled corporations (USCC).1

 This report

provides (1) comparisons of the percentages of FCCs and USCCs that filed

income tax returns showing no tax liabilities for 1989 through 1995, the

latest years for which data were available, and (2) comparisons of selected

characteristics, including age, industrial sector, and certain cost ratios, of

large corporations—those with assets of $250 million or more or gross

receipts of $50 million or more.

Our 1995 report and studies by others have suggested that differences in

characteristics between FCCs and USCCs may partially explain the

difference in their profitability. As in our 1995 report, we focused most of

our work on large corporations because large FCCs accounted for more

than 80 percent of the assets owned and gross receipts generated by

nontaxpaying FCCs.

The data on taxes paid were obtained from corporate tax returns, as filed,

and did not reflect IRS audit results or any net operating loss carrybacks

from future years. We did not attempt to determine whether the

corporations were abusing transfer prices. As agreed with your office, we

plan to conduct a separate review of advance pricing agreements, one of

the approaches the Internal Revenue Service (IRS) uses to resolve transfer

pricing disputes.

In each year between 1989 and 1995, a majority of corporations, both

foreign- and U.S.-controlled, paid no U.S. income tax. Among large

corporations, the percentage of FCCs that paid no tax exceeded that for

USCCs from 1989 through 1993. In 1994, the difference between the two

groups was not statistically significant, and in 1995, the percentage of large

 

1

For purposes of this report, a corporation is an FCC if foreign individuals or entities own at least 50

percent of its voting stock. Transfer prices are prices used in transactions between affiliated

corporations. Our previous related reports are: International Taxation: Transfer Pricing and

Information on Nonpayment of Tax (GAO/GGD-95-101, Apr. 13, 1995) and International Taxation:

Taxes of Foreign- and U.S.-Controlled Corporations (GAO/GGD-93-112FS, June 11, 1993).

Results in Brief
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Page 2 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

FCCs that paid no U.S. income tax was slightly less than that of large

USCCs. However, there are other ways to compare FCCs and USCCs. For

example, in 1995, large FCCs paid $8.31 of tax per $1,000 in gross receipts,

significantly less than the $15.58 paid by large USCCs.

Differences in the characteristics of large FCCs and USCCs may account

for part of the differences in the amount of taxes paid by the two groups.

One difference was the percentage of new corporations—those 3 years old

or less—in each group. The IRS data we reviewed indicate that newer

corporations were less likely than older corporations to pay taxes. From

1989 to 1993, a greater percentage of large FCCs than large USCCs were

new, but from 1994 to 1995, a greater percentage of large USCCs than large

FCCs were new.

Another significant difference between large FCCs and large USCCs was in

their distribution across industrial sectors. In 1995, in comparison to large

USCCs, large FCCs were more heavily concentrated in the manufacturing

and wholesale trade sectors and less concentrated in the financial services

sector. Aggregate ratios of costs to receipts for all large corporations

differed significantly across industrial sectors. The difference in cost ratios

across industries, combined with the fact that large FCCs and USCCs were

concentrated in different industries, could account for some of the

difference in the amount of taxes that large FCCs paid per dollar of

receipts and that large USCCs paid. The ratio of taxable income per dollar

of receipts should be inversely related to the ratio of costs per dollar of

receipts.

According to IRS data, about 60,000 FCCs and about 2.3 million USCCs

filed income tax returns in 1995.2

 FCCs and USCCs may not pay U.S.

income tax for a variety of reasons. For instance, some corporations may

have zero tax liabilities because of current-year operating losses; losses

carried forward from preceding tax years; or sufficient tax credits

available to offset tax liabilities. Other corporations may report no taxable

income because of the improper pricing of intercompany transactions. Any

company that has a related company with which it transacts business

needs to establish transfer prices for those intercompany transactions. The

pricing of intercompany transactions affects the distribution of profits and

ultimately the taxable income of the companies.

 

2

We excluded from this study’s scope certain entities, such as subchapter S corporations, which are

corporations that are treated similarly to partnerships for federal income tax purposes.

Background
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Page 3 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

Research efforts have attempted to explain why, on average, USCCs

appear to be more profitable than FCCs.3

 Some researchers have

concluded that part of the difference is attributable to differences in the

characteristics of FCCs and USCCs, while acknowledging that transfer

price abuses may also explain some of the difference.

The 1997 study, for example, focused on why FCCs tended to report a

lower ratio of net income to gross receipts—a measure of profitability—

than USCCs did. According to this study, differences in investment income,

industrial classification, age, and amount of interest expense explain much

of the difference in the profitability between FCCs and USCCs. That study

also found that corporations whose largest foreign shareholders owned

only 25 to 50 percent of the corporations’ stock had low profitability,

which was similar to corporations that were 100-percent owned by a single

foreign shareholder. The author suggested that, if income-shifting through

transfer price abuses were an important factor in explaining the

differences in profitability across corporations, then one would expect

single shareholder corporations to be less profitable because they would

seem to have less difficulty in shifting income between affiliates. We were

unable to identify any studies that were able to control for all potential

factors, other than transfer price abuse, that may explain the difference in

profitability.

To meet our objectives, we obtained data from IRS’ Statistics of Income

(SOI) Division on corporate tax returns for 1989 through 1995. We used

these data to determine the percentages of corporations that did not pay

taxes in each year and to obtain information about their characteristics.

We did not audit the SOI data; however, we conducted reliability tests to

ensure the consistency of the data with selected FCC and USCC corporate

statistics published by the SOI Division.

In this report, we defined a corporation as being large if its reported total

assets in tax year 1995 were at least $250 million or its reported gross

receipts totaled at least $50 million. For years preceding tax year 1995, we

deflated the $250 million asset and $50 million receipt definition of large

corporate size by the gross domestic product price deflator for those

years. We made this adjustment in the dollar magnitude of the definition

because changing price levels, over time, alter the purchasing power of

gross receipts and assets.

 

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).

Scope and

Methodology
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Page 4 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

Our report also compares “new” and “older” corporations. New

corporations are those whose income tax returns showed incorporation

dates within 3 years of the tax year date. For example, for tax year 1995,

new corporations are those with incorporation dates no earlier than 1993.

Other corporations are “older” corporations. A limitation on the precision

of our comparison between “new” versus “older” FCCs and USCCs is that

the definition of “new” relies on the dates of incorporation indicated on

corporate tax returns. In some cases, corporations that merge may also

reincorporate under a new corporate name. While the “new” entity may

represent the combination of two mature corporations, our definition

would count them as one “new” corporation.

The SOI data in this report are based on SOI’s probability sample of

taxpayer returns and thus are subject to some imprecision owing to

sampling variability. Using SOI’s sampling weights, we estimated

confidence intervals for the percentage of nontaxpaying FCCs and USCCs

for tax years 1989 through 1995.

We requested comments on a draft of this report from the Commissioner

of Internal Revenue and the Director of the Department of the Treasury’s

Office of Tax Analysis. IRS and Treasury’s comments are discussed near

the end of this letter. We did our review from July through December 1998

in accordance with generally accepted government auditing standards.

In each year from 1989 through 1995, a majority of corporations, both

foreign- and U.S.-controlled, paid no U.S. income tax. However, in each of

these years, a higher percentage of FCCs than USCCs paid no taxes. The

percentage of FCCs not paying taxes ranged from 67 percent to 73 percent

during those years, while the percentage of USCCs not paying taxes ranged

from 59 to 62 percent, as shown in figure 1 and appendix I, table I.1.

Large corporations, both FCCs and USCCs, were more likely to pay taxes

than smaller corporations. Among large corporations, the percentage of

FCCs that paid no tax exceeded that for USCCs from 1989 to 1993.

However, in 1994, the difference between the two groups was not

statistically significant, and in 1995, the percentage of large FCCs that paid

no U.S. income tax was slightly less than that of large USCCs. In 1989, 33

percent of large FCCs and 27 percent of large USCCs paid no tax, while in

1995, 29 percent of large FCCs and 32 percent of large USCCs paid no tax.

(See fig. 1 and app. I, table I.2.)

FCCs Were Less Likely

Than USCCs to Pay

U.S. Income Tax
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Note: Data presented are based on the number of corporate income tax returns filed with IRS in the

indicated year. Large FCCs or USCCs are those with assets of at least $250 million or gross receipts

of at least $50 million in constant 1995 dollars.

Source: GAO compilation of IRS data.

Although nontaxpaying corporations, both foreign- and U.S.-controlled,

were the majority of all corporations that filed tax returns in 1995, they

accounted for well under half of all corporate assets and receipts. The 67

percent of FCCs that paid no federal income tax in 1995 accounted for 24

percent of the assets and 25 percent of the gross receipts of all FCCs in

that year, as shown in figure 2.

Similarly, the 61 percent of USCCs that paid no U.S. income tax in 1995

accounted for 21 percent of the assets owned by all USCCs and 17 percent

of their receipts. (See also, table I.3. in app. I.)

Figure 1: Trend in the Percentage of

Corporations That Paid No U.S. Income

Taxes, 1989-95

Nontaxpaying

Corporations

Accounted for a

Smaller Share of Total

Assets and Receipts

Than Taxpaying

Corporations
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Note: Percentages are the ratio of nontaxpaying FCC or USCC returns filed, total assets, and gross

receipts to all FCC or USCC returns, assets, and receipts.

Source: GAO compilation of IRS data.

Large nontaxpaying FCCs and USCCs filed a small percentage of all

returns filed by nontaxpaying corporations, yet they accounted for most of

the assets of those corporations in 1995. Specifically, large nontaxpaying

FCCs made up about 2 percent of all nontaxpaying FCCs but accounted for

84 percent of the assets of all nontaxpaying FCCs. Similarly, large

nontaxpaying USCCs made up only about four-tenths of 1 percent of

all nontaxpaying USCCs, yet they accounted for 80 percent of all

nontaxpaying USCC assets. Also in 1995, large nontaxpaying FCCs

accounted for 86 percent of the receipts generated by all nontaxpaying

FCCs, while large nontaxpaying USCCs accounted for 48 percent of the

receipts generated by all nontaxpaying USCCs. (See fig. I.1 in app. I.) The

concentration of assets and receipts in the large nontaxpaying FCCs and

USCCs was similar during the earlier years of our study period. This

concentration was not unique to nontaxpaying corporations; taxpaying

corporations were similarly concentrated.

Figure 2: Nontaxpaying Corporations’

Percentage of Tax Returns, Assets, and

Receipts, 1995

Large Corporations

Accounted for Most of

the Assets of

Nontaxpaying FCCs

and USCCs
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Page 7 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

Other ways to compare large FCCs and USCCs include examining (1) the

percentage of large FCCs and USCCs that paid relatively little tax and (2)

the taxes paid relative to gross receipts by large corporations, as shown in

table 1. In 1995, the percentage of large FCCs and USCCs that paid less

than $100,000 in tax was 42 percent for FCCs and 40 percent for USCCs. In

1995, large FCCs, as a whole, paid significantly less tax per $1,000 in gross

receipts than did large USCCs, despite the fact that a greater percentage of

large USCCs paid no tax. The reason for this is that the large FCCs that

paid relatively little or no tax had significantly greater average gross

receipts than did the large USCCs that paid little or no tax.

Average

Distribution by income tax paid

Number of

returns

Percent of

returns

Gross receipts

(millions)

Income taxes paid

(thousands)

Taxes paid per

$1,000 receipts

Large FCCs

 No tax paid 812 29.4 $408 0 a

 $1 or more but less than $100,000 341 12.3 172 $37 $0.22

 $100,000 or more but less than $1 million 609 22.0 217 442 2.04

 $1 million or more 1,005 36.3 873 11,294 12.94

Total 2,767 100.0 $506 $4,204 $8.31

Large USCCs

 No tax paid 4,843 31.5 $176 0 a

 $1 or more but less than $100,000 1,242 8.1 133 $40 $0.30

 $100,000 or more but less than $1 million 3,427 22.3 143 443 3.09

 $1 million or more 5,851 38.1 1,110 21,033 18.96

Total 15,363 100.0 $521 $8,112 $15.58

Note: Columns may not sum to totals because of rounding.

a

Data not applicable.

Source: GAO compilation of IRS data.

An earlier study of the relative profitability of FCCs and USCCs suggested

that the lower relative age of FCCs partially explained their lower reported

profitability.4

 That study also showed that the reported profitability of both

FCCs and USCCs varied across industrial sectors.

From 1989 to 1993, a greater percentage of large FCCs than large USCCs

were new (i.e., incorporated for 3 years or less). However, as shown in

figure 3, this relationship was reversed for 1994 and 1995, and although not

statistically significant, the percentage of new large USCCs exceeded the

percentage of new large FCCs. This change could explain, in part, why the

percentage of nontaxpaying large FCCs declined relative to the percentage

of nontaxpaying large USCCs over the same time period.

 

4

Grubert, 1997, p. 1,880 (table 3, cols. 2 and 4) and p. 1,883 (table 6, cols. 1 and 2).

Large FCCs Paid Less

Income Tax Relative to

Gross Receipts Than

Large USCCs in 1995

Table 1: Profile of Large FCCs and USCCs by Amount of Income Taxes Paid, 1995

Age Differences

Between Large FCCs

and USCCs
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Source: GAO compilation of IRS data.

The IRS data that we examined for tax years 1989-95 also showed that, in

each of those years, the percentage of new large corporations paying no

tax exceeded the percentage of older large corporations paying no tax.

This relationship held for large FCCs, large USCCs, and all large

corporations together. (See table I.4 in app. I.)

Large FCCs were more heavily concentrated in the manufacturing and

wholesale trade sectors and less heavily concentrated in the financial

services sector than were large USCCs. These differences in industrial

concentration were found whether one compared large nontaxpaying

FCCs to large nontaxpaying USCCs or all large FCCs to all large USCCs.

Table 2 shows these comparisons for 1995.

Figure 3: Trend in Percentages of Large

FCCs and USCCs That Are New

The Industrial Profile

of Large FCCs Differed

From That of Large

USCCs
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Page 9 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

Large FCCs Large USCCs

Industry Nontaxpaying All Nontaxpaying All

Manufacturing 37.8 40.8 14.9 24.6

Wholesale trade 24.7 26.8 7.2 12.4

Financial services 15.8 13.5 54.8 32.4

Nonfinancial services 7.8 7.0 7.0 8.1

Retail trade 4.8 4.2 8.5 12.1

Othera 9.1 7.6 7.6 10.5

Total 100.0 100.0 100.0 100.0

Note: Columns may not sum to 100 because of rounding.

a

Other includes transportation and public utilities; mining; construction; agriculture, forestry, and

fishing; and other trades.

Source: GAO compilation of IRS data.

The ratios of the costs of goods sold and other costs to receipts varied

significantly across industries, which could account for some of the

difference between the amount of taxes that large FCCs paid per dollar of

receipts and the amount that large USCCs paid. The ratio of taxable

income per dollar of receipts should be inversely related to the ratio of

costs per dollar of receipts. Corporations in the manufacturing, wholesale

trade, and retail trade industries, on average, had significantly higher ratios

of costs of goods sold to receipts than corporations in the financial and

nonfinancial service industries. The largest component of costs of goods

sold is purchases from other businesses, which, as table 3 on p. 10

indicates, are relatively unimportant for the two service industries.

In contrast, corporations in the financial services industry, on average, had

significantly higher ratios of interest expenses to receipts. This pattern of

differences in cost ratios across industries was similar for both all large

FCCs and all large USCCs. The pattern also was similar for large

nontaxpaying FCCs and USCCs, with one exception: the ratio of interest

expenses to receipts for nontaxpaying USCCs in the financial services

sector was not significantly higher than that for nontaxpaying USCCs

overall. (See table I.5 in app. I.)

Wholesale trade, the industry with the highest ratio of costs of goods sold

to receipts, had the lowest ratio of taxes paid to receipts, while financial

services, the industry with the lowest ratio of costs of goods sold to

receipts, had the highest ratio of taxes paid to receipts among the major

industries. These relationships were similar for both large FCCs and large

USCCs. The fact that a significantly larger percentage of all large USCCs

were in the financial services industry and a significantly smaller

percentage of them were in the wholesale trade industry (compared to

large FCCs) may, in part, explain why the aggregate ratio of taxes paid to

Table 2: Percentage Distribution of

Large FCCs and USCCs by Major

Industry, 1995

Cost Ratios Varied

Significantly Across

Industries
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Page 10 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

receipts, shown in table 3, was significantly higher for USCCs.

Nevertheless, within each industry, the ratio of taxes paid to receipts was

higher for large USCCs than for large FCCs in 1995. Moreover, in every

major industry except the financial services industry, a greater percentage

of large FCCs than large USCCs paid no tax at all for all the years that we

examined. (See tables I.6 through I.8 in app. I.)

Industry

Cost of goods sold

as a % of receipts

Purchases as a

 % of receipts

Interest as a

 % of receipts

Taxes as a %

 of receipts

% of corporations in

industry paying no tax

All large FCCs 65.4 49.9 6.2 0.8 29.4

 Manufacturing 65.6 48.5 3.9 1.0 27.2

 Wholesale trade 82.3 76.3 2.2 0.4 27.0

 Financial services 30.5 1.6 24.9 1.4 34.3

 Nonfinancial services 38.6 12.0 10.2 0.7 32.4

 Retail trade 71.0 69.4 1.4 0.6 33.9

 Othera 64.0 32.1 3.9 0.8 35.2

All large USCCs 52.8 32.0 6.5 1.6 31.5

 Manufacturing 62.5 38.9 3.5 1.4 19.2

 Wholesale trade 83.3 80.6 2.0 0.6 18.4

 Financial services 29.2 1.1 17.6 2.1 53.4

 Nonfinancial services 32.0 8.2 3.1 1.4 27.2

 Retail trade 68.0 65.6 1.8 0.9 22.2

 Othera 38.9 11.4 5.6 2.3 22.7

Note: All estimates in the first three columns have sampling errors of (+/-) 2 percent or less. All

estimates in the fourth column have sampling errors of (+/-) 0.7 percent or less. All estimates in the

last column have sampling errors of (+/-) 5 percent or less.

a

Other includes transportation and public utilities; mining; construction; agriculture, forestry, and

fishing; and other trades.

Source: GAO compilation of IRS data.

The data in table 3 do not reveal any logical relationships across industries

between (1) the ratios of either costs or taxes paid to receipts and (2) the

percentage of corporations paying tax in each industry. For example, even

though corporations in the financial services industry, on average, had the

lowest ratio of costs of goods sold to receipts and the highest ratio of taxes

paid to receipts, a higher percentage of corporations in that industry paid

no tax compared with all the other industries.

We requested comments on a draft of this report from the Commissioner

of Internal Revenue and the Director of the Department of the Treasury’s

Office of Tax Analysis. On March 8, 1999, we received comments prepared

by IRS’ Chief Operations Officer through the Office of the National

Director for Legislative Affairs. The Director of the Office of Tax Analysis

and his staff provided comments in a February 25, 1999, meeting.

Table 3: Cost, Tax, and Other Ratios for Large FCCs and USCCs by Industry, 1995

Agency Comments
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Page 11 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

Both IRS and Treasury were in overall agreement with the draft report.

Both elaborated on issues we had raised, and both provided some

technical comments, which we incorporated where appropriate.

As agreed with your office, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 30 days from the

date of this letter. At that time, we will send copies to Senator William V.

Roth, Jr., Chairman, and Senator Daniel Patrick Moynihan, Ranking

Minority Member, Senate Committee on Finance; Representative Bill

Archer, Chairman, and Representative Charles B. Rangel, Ranking Minority

Member, House Committee on Ways and Means; Representative Amo

Houghton, Chairman, and Representative William J. Coyne, Ranking

Minority Member, Subcommittee on Oversight, House Committee on Ways

and Means; and other interested congressional committees. We will also

send copies to The Honorable Robert E. Rubin, Secretary of the Treasury;

The Honorable Charles O. Rossotti, Commissioner of Internal Revenue;

and other interested parties. Copies will also be made available to others

upon request.

This report was prepared under the direction of Charlie W. Daniel,

Assistant Director. Other major contributors are listed in appendix II. If

you have any questions, please call Mr. Daniel or me on (202) 512-9110.

Sincerely yours,

James R. White

Director, Tax Policy and

Administration Issues
Page 12 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

Contents

1 Letter

Appendix I 14

Statistical

Compendium

Appendix II 19

Major Contributors to

This Report

Table 1: Profile of Large FCCs and USCCs by Amount of

Income Taxes Paid, 1995

7

Table 2: Percentage Distribution of Large FCCs and

USCCs by Major Industry, 1995

9

Table 3: Cost, Tax, and Other Ratios for Large FCCs and

USCCs by Industry, 1995

10

Table I.1: Number and Percent of Returns for All

Nontaxpaying FCCs and USCCs

14

Table I.2: Number and Percent of Returns for Large

Nontaxpaying FCCs and USCCs

14

Table I.3: Assets Owned and Business Receipts

Generated by All Nontaxpaying FCCs and USCCs

15

Table I.4: Percentages of Large New and Older

Nontaxpaying FCCs and USCCs

16

Table I.5: Selected Cost Ratios for Large Nontaxpaying

FCCs and USCCs, 1995

16

Table I.6: All and Large Nontaxpaying FCC and USCC

Manufacturers and Wholesalers

17

Table I.7: All and Large Nontaxpaying FCCs and USCCs

in Nonfinancial and Financial Services

17

Table I.8: All and Large Nontaxpaying FCCs and USCCs

in Retail Trade

18

Tables

Figure 1: Trend in the Percentage of Corporations That

Paid No U.S. Income Taxes, 1989-95

5

Figure 2: Nontaxpaying Corporations’ Percentage of Tax

Returns, Assets, and Receipts, 1995

6

Figures

Figure 3: Trend in Percentages of Large FCCs and USCCs

That Are New

8
Contents

Page 13 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

Figure I.1: Corporate Returns, Assets, and Receipts for

Large Nontaxpaying FCCs and USCCs as a Percentage

of All Nontaxpaying FCCs and USCCs, 1995

15

Abbreviations

FCC Foreign-controlled corporations

IRS Internal Revenue Service

SOI Statistics of Income

USCC U.S.- controlled corporations
Appendix I

Statistical Compendium

Page 14 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

The tables and figure in this statistical compendium supplement those in

the letter. All the values were obtained from IRS’ SOI corporate data files

for tax years 1989-95.1

FCC returns USCC returns

Confidence intervalaConfidence intervala

Year Number

Upper

bound

Point

estimate

Lower

bound Number

Upper

bound

Point

estimate

Lower

bound

1989 32,135 76.3% 71.7% 67.1% 1,266,281 59.8% 58.9% 58.0%

1990 32,348 77.3 73.3 69.3 1,265,841 61.5 60.6 59.7

1991 35,138 76.6 72.8 69.0 1,265,390 62.7 61.8 60.9

1992 34,980 73.7 69.2 64.7 1,246,355 62.6 61.6 60.6

1993 37,588 72.9 69.6 66.3 1,217,410 61.6 60.9 60.1

1994 38,433 73.5 70.4 67.2 1,381,055 62.0 61.3 60.6

1995 40,195 70.2 66.8 63.4 1,377,092 61.8 61.1 60.4

Note: The number of returns are population estimates based on IRS’ samples of corporate tax

returns. Percentages are the ratio of nontaxpaying FCCs and USCCs to all (taxpaying and

nontaxpaying) FCCs and USCCs, respectively.

a

The upper and lower sampling error bounds of the percentage of nontaxpaying FCCs and USCCs

indicate we are confident the true estimate of the percentage would be within these bounds in 95 out

of every 100 samples.

Source: GAO compilation of IRS data.

FCC returns USCC returns

Confidence intervalaConfidence intervala

Year Number

Upper

bound

Point

estimate

Lower

bound Number

Upper

bound

Point

estimate

Lower

bound

1989 684 34.4% 33.0% 31.6% 3,860 27.9% 27.2% 26.5%

1990 819 39.1 37.7 36.3 3,896 28.9 28.1 27.4

1991 1,019 43.6 42.2 40.8 4,196 32.6 31.8 30.9

1992 948 39.7 38.3 36.9 4,059 31.2 30.5 29.8

1993 816 33.8 32.6 31.4 4,299 31.3 30.7 30.1

1994 739 29.7 28.6 27.5 4,291 30.1 29.5 28.9

1995 812 30.4 29.4 28.3 4,843 32.1 31.5 31.0

Note: The number of returns are population estimates based on IRS’ samples of corporate tax

returns. Percentages are the ratio of large nontaxpaying FCCs and USCCs to all large (taxpaying and

nontaxpaying) FCCs and USCCs, respectively.

a

The upper and lower bound confidence intervals of the percentage of nontaxpaying FCCs and

USCCs indicate we are confident the true estimate of the percentage would be within these bounds in

95 out of every 100 samples.

Source: GAO compilation of IRS data.

 

1

Filings made by Real Estate Investment Trusts and Regulated Investment Companies were included in

our compilation. If they had been excluded, the difference would have been statistically insignificant.

Table I.1: Number and Percent of Returns for All Nontaxpaying FCCs and USCCs

Table I.2: Number and Percent of Returns for Large Nontaxpaying FCCs and USCCs
Appendix I

Statistical Compendium

Page 15 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

FCCs USCCs

Year Returns Assets Receipts Returns Assets Receipts

1989 32,135 25.6% 21.0% 1,266,281 18.6% 16.9%

1990 32,348 28.5 22.5 1,265,841 20.3 18.1

1991 35,138 37.1 31.4 1,265,390 20.1 18.5

1992 34,980 28.4 29.0 1,246,355 20.8 18.5

1993 37,588 27.8 25.5 1,217,410 20.9 17.5

1994 38,433 23.2 21.2 1,381,055 21.0 17.0

1995 40,195 23.6 25.2 1,377,092 20.5 17.0

Note: Percentages are the ratio of nontaxpaying FCCs and USCCs to all (taxpaying and

nontaxpaying) FCCs and USCCs, respectively. All percent estimates have sampling errors of (+/-)

1 percent.

Source: GAO compilation of IRS data.

Note: Percentages are those for large nontaxpaying FCC or USCC returns filed, total assets, and

gross receipts to all nontaxpaying FCC and USCC returns, assets, and receipts.

Source: GAO compilation of IRS data.

Table I.3: Assets Owned and Business Receipts Generated by All Nontaxpaying FCCs and USCCs

Figure I.1: Corporate Returns, Assets,

and Receipts for Large Nontaxpaying

FCCs and USCCs as a Percentage of All

Nontaxpaying FCCs and USCCs, 1995
Appendix I

Statistical Compendium

Page 16 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

FCCs USCCs

Year New Older New Older

1989 43.8% 30.9% 45.5% 25.1%

1990 48.8 35.9 48.0 26.0

1991 54.7 40.4 48.2 30.5

1992 41.4 38.1 47.7 29.1

1993 38.7 32.0 52.5 28.8

1994 32.5 28.3 48.5 27.8

1995 35.7 28.7 45.5 30.2

Note: “New” includes FCCs and USCCs incorporated within 3 years; “older” includes those

incorporated earlier.

Source: GAO compilation of IRS data.

FCCs USCCs

Major industry

Cost of goods sold

as % of receipts

Purchases as

% of receipts

Interest as %

of receipts

Cost of goods sold

as % of receipts

Purchases as

% of receipts

Interest as %

of receipts

Manufacturing 72.1 54.1 3.9 67.7 48.2 4.8

Wholesale trade 76.7 72.5 3.7 87.5 83.9 1.6

Financial services 21.0 2.9 39.6 14.5 0.4 4.5

Nonfinancial services 41.5 5.6 15.0 31.4 10.7 5.3

Retail trade 61.3 56.5 2.8 68.0 64.8 2.6

Othera 73.4 52.6 4.2 46.5 14.7 8.5

Overall 68.3 54.9 6.9 51.3 37.3 4.3

Note: All estimates in this table have sampling errors of (+/-) 2 percent or less.

a

Other includes transportation and public utilities; mining; construction; agriculture, forestry, and

fishing; and other trades.

Source: GAO compilation of IRS data.

Table I.4: Percentages of Large New and

Older Nontaxpaying FCCs and USCCs

Table I.5: Selected Cost Ratios for Large Nontaxpaying FCCs and USCCs, 1995
Appendix I

Statistical Compendium

Page 17 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

Manufacturers Wholesalers

All Large All Large

Year FCCs USCCs FCCs USCCs FCCs USCCs FCCs USCCs

1989 50.0%a 55.6% 31.4% 19.7% 61.0%a 52.4% 33.0%a 18.2%

1990 56.3a 58.0 37.1 22.2 63.6 53.3 37.2 18.3

1991 57.6a 58.2 39.5 24.9 71.0 57.6 40.7 24.7

1992 55.1a 60.6 37.1 22.3 62.0 55.9 33.9 21.2

1993 54.9 57.5 29.8 20.4 67.0 54.4 28.1 18.5

1994 52.0 54.9 24.6 17.5 66.3 55.2 24.8 16.8

1995 53.1 57.5 27.2 19.2 64.0 55.3 27.0 18.4

Note: Percentages under the “all” category are the ratio of nontaxpaying FCCs or USCCs to all FCCs

and USCCs by industry. Percentages under the “large” category are the ratio of nontaxpaying large

FCCs or USCCs to all large FCCs or USCCs by industry. These estimates have sampling errors of

(+/-) 10 percent or less except where noted.

a

Sampling errors may be as high as (+/-) 13 percent.

Source: GAO compilation of IRS data.

Nonfinancial services Financial services

All Large All Large

Year FCCs USCCs FCCs USCCs FCCs USCCs FCCs USCCs

1989 71.1%a 63.1% 40.1% 27.9% 82.1% 56.3% 35.5% 40.3%

1990 83.8 63.8 35.7 24.5 84.5 58.7 37.6 41.9

1991 72.1a 65.4 50.7 29.3 79.9 59.6 40.8 44.7

1992 69.5a 65.0 46.4 26.8 79.6 57.7 41.6 45.7

1993 71.9 65.7 43.9 27.0 74.2 57.7 36.4 49.9

1994 64.4b 66.4 39.7 28.3 79.5 59.1 35.6 51.7

1995 61.1 65.9 32.4 27.2 74.7 58.0 34.3 53.4

Note: Percentages under the “all” category are the ratio of nontaxpaying FCCs or USCCs to all FCCs

and USCCs by industry. Percentages under the “large” category are the ratio of nontaxpaying large

FCCs or USCCs to all large FCCs or USCCs by industry. These estimates have sampling errors of

(+/-) 10 percent or less except where noted.

a

Sampling errors may be as high as (+/-) 17 percent.

b

Sampling error is 11 percent.

Source: GAO compilation of IRS data.

Table I.6: All and Large Nontaxpaying FCC and USCC Manufacturers and Wholesalers

Table I.7: All and Large Nontaxpaying FCCs and USCCs in Nonfinancial and Financial Services
Appendix I

Statistical Compendium

Page 18 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

All Large

Year FCCs USCCs FCCs USCCs

1989 82.6%a 59.1% 34.0% 27.6%

1990 59.7b 62.0 47.5 29.3

1991 72.6c 63.1 56.6 31.5

1992 72.1c 62.2 42.2 26.0

1993 71.9a 61.6 40.9 21.4

1994 78.8a 61.3 32.4 17.4

1995 78.4a 61.4 33.9 22.2

Note: Percentages under the “all” category are the ratio of nontaxpaying FCCs or USCCs to all FCCs

and USCCs in retail trade. Percentages under the “large” category are the ratio of nontaxpaying large

FCCs or USCCs to all large FCCs or USCCs in retail trade. These estimates have sampling errors of

(+/-) 10 percent or less except where noted.

a

Sampling errors may be as high as (+/-) 14 percent.

b

Sampling errors may be as high as (+/-) 22 percent.

c

Sampling errors may be as high as (+/-) 17 percent.

Source: GAO compilation of IRS data.

Table I.8: All and Large Nontaxpaying

FCCs and USCCs in Retail Trade
Appendix II

Major Contributors to This Report

Page 19 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations

James A. Wozny, Assistant Director

Charles C. Tuck, Senior Economist

Macdonald R. Phillips, Senior Economist

Lawrence M. Korb, Senior Evaluator

Pamela R. Pavord, Evaluator

Elizabeth W. Scullin, Communications Analyst

Wendy Ahmed, Statistician

Shirley A. Jones, Senior Attorney

General Government

Division

Office of General

Counsel
Page 20 GAO/GGD-99-39 Foreign- and U.S.-Controlled Corporations
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