Corporate Tax Expenditures: Information on Estimated Revenue Losses and Related Federal Spending Programs
Published: 2013-03-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Tax expenditures--special exemptions and exclusions, credits, deductions, deferrals, and preferential tax rates claimed by corporations, individuals, or both--support federal policy goals but result in revenue forgone by the federal government. Congress and the administration are reexamining tax expenditures used by corporations as part of corporate tax reform. GAO was asked to examine issues related to corporate tax expenditures. This report: (1) describes trends in the number of corporate tax expenditures and estimated corporate revenue losses since 1986; (2) describes the use of corporate tax expenditures in 2011; and (3) compares the size of corporate tax expenditures to federal spending by budget function and, for tax expenditures used only by corporations, identifies spending programs with similar purposes. To address these objectives, GAO analyzed Department of the Treasury estimates of tax expenditure revenue losses from 1986 to 2011 and Internal Revenue Service 2010 data and interviewed agency officials. GAO also reviewed the legislative history and relevant studies to determine the reported purpose of corporate-only tax expenditures, and searched federal program lists to identify federal spending programs that appear to share a reported specific purpose similar to corporate-only tax expenditures. The programs identified as related were not reviewed by the agencies responsible for the programs.
section_title: What GAO Found
paragraphs: Estimated tax revenue that the federal government forgoes resulting from corporate tax expenditures increased over the past few decades as did the total number of corporate tax expenditures. In 2011, the Department of the Treasury estimated 80 tax expenditures resulted in the government forgoing corporate tax revenue totaling more than $181 billion. Many of these tax expenditures are broadly available to both corporate and individual taxpayers. More than twothirds or 56 of the 80 tax expenditures used by corporations in 2011 were also used by individual taxpayers, such as other types of businesses not organized as corporations. Modifying any of these 56 tax expenditures as part of broader corporate tax reform would likely affect both corporate and individual taxpayers to some degree.
Corporate tax expenditures span a majority of federal mission areas, but their relative size differs across budget functions. The 80 corporate tax expenditures had estimated revenue losses in 12 of the 18 budget functions in 2011. Of the $181 billion in estimated corporate tax revenue losses, 81 percent was concentrated in the international affairs and housing and commerce budget functions, exceeding federal outlays in those budget functions. The 24 tax expenditures used only by corporations in 2011 provide support intended to encourage certain activities, such as energy production, or provide support for certain entity types, such as credit unions. A corporate tax expenditure may have multiple purposes: one narrowly focused on a specific activity or entity as well as broader or additional purposes pursuing national priorities or other activities. For example, 7 of the 24 corporate-only tax expenditures are aimed at encouraging or supporting specific energy sources and technologies, and these tax expenditures may also have broader national purposes such as promoting domestic energy production and energy security. In examining their narrowly focused reported purposes, one-third of the 24 corporate-only tax expenditures appear to share a similar purpose with at least one federal spending program.
section_title: What GAO Recommends
paragraphs: GAO made no recommendations in this report. Treasury provided technical comments that were incorporated, as appropriate; IRS had no comments.

section_title: Letter
paragraphs: Each year, the federal government makes a significant commitment to  corporate income tax expenditures, which are reductions in the federal  corporate income tax liability that result from special exemptions and  exclusions from taxation, deductions, credits, deferrals of tax liability, or  preferential tax rates. Estimated corporate revenue losses represent the  amount of revenue the federal government forgoes as a result of  corporate tax expenditures. Tax expenditures play a central role in a  number of Congress’s and the administration’s proposals for corporate  tax reform. Discussion regarding corporate tax reform has involved  modifying or repealing certain tax expenditures as a way to broaden the  corporate tax base and using the resulting revenue gains to offset  reduced revenue from lowering the corporate income tax rate. However,  there is little agreement on how much corporate tax rates should be  reduced; which tax expenditures should be repealed or modified to offset  such a rate cut; and what, if any, changes would be made to the  individual income tax system to account for other types of business  organizations and individual taxpayers that claim the same tax  expenditures as corporations.
Corporate tax expenditures cover a wide range of federal policy goals and  may have one or more purposes that are also pursued by federal  spending programs. As we recently reported, reassessments of tax  expenditures benefit from understanding whether there are related  spending programs.
You requested that we provide information describing corporate tax  expenditures. Specifically, this report: (1) describes trends in the number  of corporate tax expenditures and aggregate corporate revenue losses  since 1986; (2) describes the use of corporate tax expenditures in 2011;  and (3) compares the size of corporate tax expenditures to federal  spending by budget function and, for tax expenditures used only by  corporations, identifies spending programs with similar purposes.
To identify how corporate tax expenditures have changed in terms of their  numbers and aggregate revenue loss, we analyzed Department of the  Treasury (Treasury) estimates for fiscal years 1986 through 2011. We  aggregated estimated corporate and individual revenue losses and also  identified the number of tax expenditures with only estimated corporate  revenue losses, those with both corporate and individual revenue losses,  and those with only individual revenue losses.
To describe the use of corporate tax expenditures, including the number  of taxpayers claiming corporate-only tax expenditures, we analyzed  Treasury revenue loss estimates for 2011 for corporate and individual  taxpayer groups. We defined corporate tax expenditures as those that Treasury reported had estimated revenue losses for corporations in 2011;  we describe any tax expenditures that Treasury estimated lost only  corporate tax revenue in 2011 as corporate-only tax expenditures. We  also obtained, where available, estimates from the Internal Revenue  Service (IRS) Statistics of Income (SOI) 2010 corporate sample on the  number of corporate taxpayers claiming certain tax expenditures. These  were the most recent estimates available at the time of our work.  Similarly, we obtained publicly available fiscal year 2010 data from IRS’s  Tax Exempt and Government Entities division on certain corporate tax  expenditures. To assess the reliability of the data and estimates, we  reviewed agency documentation, interviewed agency officials, and  reviewed our prior reports that have used the data and estimates. While  we determined that the Treasury and IRS data and estimates were  sufficiently reliable for our purposes, the IRS SOI corporate sample may  not provide a precise estimate of the number of taxpayers claiming a tax  expenditure when the number of taxpayers is very small.
To compare corporate tax expenditures to federal spending by budget  function, we summed the estimated revenue losses of corporate tax  expenditures and compared them to federal outlays by budget function for  2011. To identify spending programs with reported purposes similar to  corporate-only tax expenditures in 2011, we first identified the reported  purpose of those tax expenditures by reviewing their legislative histories,  our prior work, as well as work by the Congressional Research Service  (CRS) and the Congressional Budget Office (CBO) that discussed the tax  expenditures. We reviewed these sources for any discussion on the intent  or rationale of the tax expenditures. For this report, we identified a narrow  reported purpose, specific to the type of entity or activity that the  corporate-only tax expenditures support or target. In identifying the  narrow reported purposes we were not trying to discern the legislative  intent. The corporate-only tax expenditures may have broader or  additional purposes beyond the narrow reported purposes we identified.  We used the narrow reported purposes as they allowed us to identify the  tax and nontax programs that appear to most closely support the activity  or entity the corporate-only tax expenditures support. We then searched  the 2012 Catalog of Federal Domestic Assistance (CFDA) to identify  federal spending programs that appear to share a similar reported  purpose based on the CFDA’s program descriptions. Our list of nontax  programs that appear to share a similar reported purpose has not been  reviewed by the agencies responsible for them. We identified tax  expenditures that appear to share a similar reported purpose by reviewing  their descriptions in the fiscal year 2013 Analytical Perspectives,  supplemented with the description in CRS’s 2010 tax expenditures  compendium, and Treasury and IRS reviewed our identification of related   See appendix I for more information on our scope and  tax expenditures.methodology.
We conducted our work from October 2012 to March 2013 in accordance  with all sections of GAO’s Quality Assurance Framework that are relevant  to our objectives. The framework requires that we plan and perform the  engagement to obtain sufficient and appropriate evidence to meet our  stated objectives and to discuss any limitations in our work. We believe  that the information and data obtained, and the analysis conducted,  provide a reasonable basis for any findings and conclusions in this  product.
subsections: section_title: Background
paragraphs: Corporate tax expenditures are special tax provisions that are exceptions  to the normal structure of the corporate income tax system. They  represent revenue the federal government forgoes from these tax  provisions. The Congressional Budget and Impoundment Control Act of  1974 identified six types of tax provisions that are considered tax  expenditures when they are exceptions to the normal tax structure,  including exemptions, exclusions, deductions, credits, deferral, and  preferential tax rates.
Treasury and the Joint Committee on Taxation  each compile an annual list of tax expenditures by budget function with  estimates of the corporate and individual income tax revenue losses for  each tax expenditure in their respective lists. Treasury and the Joint  Committee on Taxation calculate separately the estimated revenue  losses for each tax expenditure under the assumptions that all other tax  expenditures remain in the tax code and taxpayer behavior remains  constant. Thus, the estimated revenue losses do not represent the  amount of revenue that would be gained if a particular tax expenditure  was repealed, since repeal would probably change taxpayer behavior in  some way that would affect revenue.
Corporate income tax expenditures are estimated for firms organized  under the tax code as C corporations, which include most large, publicly  held corporations, and have their profits taxed at the entity level under the  corporate income tax system (filed on an IRS form 1120). Other types of  businesses, such as partnerships and S corporations, are referred to as “pass-through” entities because for tax purposes the income earned by  these businesses is attributed to or passed through to the owners of the  business and are in general taxed only once under the individual income  tax system. Treasury and the Joint Committee on Taxation classify the  estimated amounts of tax expenditures claimed (or used) by “pass- through” entities as individual income tax expenditures.
The classification of a tax expenditure as corporate or individual, or both  is based on the entity that claims or uses the particular tax provision or  would report a type of income if it were not excluded from tax. This  classification reflects what is referred to as the statutory incidence of the  tax expenditure and shows which entities—corporations or individuals, or  both—can directly reduce their tax liability because of the tax expenditure.  However, as both Treasury and the Joint Committee on Taxation note,  the benefits and outcomes from the tax expenditure may be intended to  ultimately benefit people other than the direct recipients of the tax  expenditure. To the extent that a tax expenditure leads to changes in the  prices of particular goods or services, wages, or returns on investment,  consumers, employees, or shareholders may see benefits that they  otherwise would not have received. A classification based on ultimate  beneficiaries would reflect what is known about the economic incidence of  tax expenditures rather than the statutory incidence. credit for low-income housing investments, while claimed largely by  corporate taxpayers, is intended to ultimately benefit individuals by  stimulating the production of affordable rental housing and thereby  enabling low-income households to obtain potentially higher quality  housing for lower rent than they would have otherwise.
See Tax Policy Center, How Big Are Total Individual Income Tax Expenditures, and  Who Benefits from Them? Discussion Paper No. 31 (December 2008) and GAO,  Understanding the Tax Reform Debate: Background, Criteria, & Questions,  GAO-05-1009SP (Washington, D.C.: Sept. 1, 2005). million in tax year 2007 and 2.2 million in tax year 2000. Measured  relative to the economy as a share of gross domestic product (GDP),  corporate income tax receipts increased in the years leading up to the  economic recession that began in December 2007. During this period  they increased from 2.1 percent of GDP in 2000 to 2.7 percent of GDP in  2007 and have since decreased to 1.2 percent of GDP in 2011.
Both members of Congress and the administration have outlined potential  frameworks and proposals for modifying and simplifying the corporate  income tax system in recent years. A number of these proposals have  involved modifying or repealing some corporate tax expenditures to  broaden the corporate income tax base and using the resulting revenue  offset to reduce corporate income tax rates. One notable challenge for  broader corporate tax reform is the degree to which changes to tax  expenditures affect other types of taxpayers claiming them as most  corporate tax expenditures are also available to other types of business  entities other than corporations.
In selecting activities to fund federal policy goals, Congress can choose to  enact a tax expenditure rather than a spending program or vice versa for  a variety of reasons. We have developed and highlighted criteria and  questions for evaluating tax expenditures, including whether other policy  tools, such as spending programs, are preferable to tax expenditures. In  addition, we have long reported that, once enacted, tax expenditures and  their relative contributions toward achieving federal missions and goals  are often less visible than spending programs, which are subject to a  more systematic review of performance, including results. More  recently, the Government Performance and Results Act (GPRA)
Modernization Act of 2010 (GPRAMA) established a framework for  providing a more crosscutting and integrated approach to focusing on  results and improving government performance, including for tax  expenditures. GPRAMA makes clear that the Office of Management and  Budget, in coordination with federal agencies, is to identify, among other  things, the various federal agencies, program activities, and tax  expenditures that contribute to the federal government’s performance  plan that defines the level of performance to be achieved toward  crosscutting priority goals. These crosscutting priority goals cover a  limited number of policy areas as well as goals to improve management  across the federal government.  Moving forward, GPRAMA  implementation can help inform tough choices in setting priorities as  policymakers address the rapidly building fiscal pressures facing our  national government.
section_title: Estimated Revenue Losses from Corporate Tax Expenditures and the Number of Corporate Tax Expenditures Have Increased Since 1986
paragraphs: Estimated revenue losses from corporate tax expenditures have  increased over the last few decades in constant dollars, as shown in  figure 1. After decreasing in the years following the Tax Reform Act of  1986, due to changes to both tax rates and tax expenditures, corporate  revenue losses increased thereafter. Individual revenue losses also  increased, although at a faster pace than corporate revenue losses.
From 1986 through 2011, the number of tax expenditures with estimated  corporate revenue losses increased from 61 in 1986 to 80 in 2011, as  shown in figure 2.
section_title: More Than Two- Thirds of Corporate Tax Expenditures Are Also Used by Individuals
paragraphs: Estimated corporate revenue losses in 2011, which totaled $181.4 billion,  were approximately the same size as the amount of corporate income tax  revenue the federal government collected that year. Individual tax  revenue losses totaled $891 billion in 2011, and included tax  expenditures used by other types of business entities that pass through to  individual taxpayers. According to Treasury’s 2011 estimates, 80 tax  expenditures had corporate revenue losses. Of those, two expenditures  accounted for 65 percent of all estimated corporate revenues losses in  2011 while another five tax expenditures—each with at least $5 billion or  more in estimated revenue loss for 2011—accounted for an additional 21  percent of corporate revenue loss estimates. Table 1 shows the seven  largest corporate tax expenditures in 2011.
A majority of corporate tax expenditures are not isolated to the corporate  income tax system but also apply to other types of businesses, including  “pass-through” entities. Of the 80 tax expenditures used by corporations,  56 were also used by individuals, as shown in figure 3. Modifying any of  these 56 tax expenditures as part of broader corporate tax reform would  likely affect both corporate and individual taxpayers to some degree.  However, the percentage of corporate taxpayers using these tax  expenditures varies considerably across the 56 tax expenditures. For  example, some tax expenditures are predominately used by corporations,  such as the alcohol fuels credit, with estimated corporate revenue losses  comprising 96 percent of the tax expenditure’s estimated $500 million  income tax revenue loss in 2011.individuals, such as the exclusion of utility conservation subsidies, where  corporations account for less than 5 percent of the $220 million estimated  revenue loss in 2011. See appendix II for more information on these 56  tax expenditures’ estimated corporate revenue losses in 2011.
section_title: Corporate Tax Expenditures Span Many Budget Functions; One-Third of Corporate-Only Tax Expenditures Share a Similar Purpose with Federal Spending Programs
subsections: section_title: Corporate Tax Expenditures Span Many Budget Functions, and Estimated Corporate Revenue Losses Are Concentrated in Two Budget Functions
paragraphs: Corporate tax expenditures span a majority of federal mission areas, but  their relative size differs across budget functions. The 80 corporate tax  expenditures had estimated revenue losses in 12 of the 18 budget  functions in 2011, as shown in table 2. Of the $181 billion in estimated  corporate tax revenue losses, 81 percent was concentrated in the  international affairs and housing and commerce budget functions. In  these two budget functions, estimated corporate revenue losses were  more than federal outlays.
Corporate-only tax expenditures generally support or encourage a  specific type of entity or activity. See appendix V for the reported  purposes for the 24 corporate-only tax expenditures that were the basis  for our identification of related federal activities. Some of these tax  expenditures have multiple reported purposes that are broader and in  pursuit of national priorities. For example, seven corporate-only tax  expenditures are aimed at encouraging or supporting the production of  specific energy sources or the development of technology or  infrastructure for certain energy sectors. These tax expenditures also  have broader purposes such as promoting domestic energy production  and energy security.
Other corporate-only tax expenditures provide support for certain types of  entities, such as insurance companies or credit unions. Beyond providing  support for these entities, these corporate-only tax expenditures may  have additional purposes, which are different or broader in scope, related  to why these types of entities receive tax support. However some of these  tax expenditures were granted to entities prior to World War II and the  rationale for continuing support to these entities may have changed over  time, making it difficult to determine the purpose of providing the support.  Our previous work highlighted the changing historical basis for one of  these tax expenditures—the tax exemption of credit union income—as  shown in figure 4.
Of the 24 corporate-only tax expenditures, one-third appear to share a  similar purpose with federal spending programs. The largest number of  these tax expenditures support purposes related to energy- and natural  resources and environment-related purposes. These tax expenditures  can be broken into two groups: (1) those aimed at encouraging fossil fuel  production and development, and (2) those that are intended to  encourage technology development, renewable energy, or energy  efficiency. We identified related spending programs that appear to share  a similar reported purpose with tax expenditures for the second category,  but none for the first. See appendix VI for a summary list of related  federal spending programs and activities.
While we identified related federal spending programs based on reported  purposes specific to the entity or activity being supported, a number of  these tax expenditures may also have one or more reported purposes  that pursue broader or different aims. If a broader reported purpose was  used, the extent of related spending programs identified may change  considerably. For example, the bio-diesel and small agri-biodiesel  producer tax credits, one of the corporate-only tax expenditures in 2011,  have a specific reported purpose of encouraging production of biodiesel  fuels, and we identified three federal spending programs that appear to  share a similar purpose. Using a broader purpose for this tax expenditure  would likely increase the number of federal spending programs identified  that have a similar purpose. For example, our prior work on renewable  energy identified nearly 700 federal initiatives related to renewable  energy, including the bio-diesel and small agri-biodiesel producer tax  credits. Applying an even broader national purpose, such as  encouraging domestic energy production, could further increase the  number of federal spending programs, as well as other federal activities,  such as federal regulations and tax expenditures, which may share a  similar purpose. Alternatively, applying a different purpose, such as  supporting rural and farm areas, could lead to identifying different federal  programs that may share a similar purpose.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretary of the Treasury and the  Acting Commissioner of Internal Revenue for comment. Treasury  provided technical comments which we incorporated; IRS had no  comments on the report.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to interested congressional  committees, the Secretary of the Treasury, the Acting Commissioner of  Internal Revenue, and other interested parties. In addition, the report will  be available at no charge on the GAO website at http://www.gao.gov.
If you have any questions on this report, please contact me at (202) 512- 9110 or whitej@gao.gov. Contact points for our offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  Key contributors to this report are listed in appendix VII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report: (1) describes trends in the number of corporate tax  expenditures and aggregate corporate revenue losses since 1986; (2)  describes the use of corporate tax expenditures in 2011; and (3)  compares the size of corporate tax expenditures to federal spending by  budget function and, for tax expenditures used only by corporations,  identifies spending programs with similar purposes.
subsections: section_title: Trend Analysis of Treasury Tax Expenditure Estimates
paragraphs: To identify how corporate tax expenditures have changed in terms of their  numbers and aggregate estimated revenue losses, we analyzed tax  expenditure estimates developed by the Department of the Treasury  (Treasury) and reported by the Office of Management and Budget in the  Federal Budget’s Analytical Perspectives for fiscal years 1986 through  2011. For this period, we determined which tax expenditures had  estimates only for corporations, for both corporations and individuals, and  only for individuals. We then summed the estimated revenue losses and  the number of tax expenditures by taxpayer group to determine changes  over time in trend data and to see how the amounts differed between  these taxpayer groups.2011 constant dollars to adjust for inflation using the chain price indexes  reported in the fiscal year 2013 federal budget. While sufficiently reliable  as a gauge of general magnitude, summing revenue loss estimates does  not take into account any interactions between tax expenditures. In  addition, revenue loss estimates do not incorporate any behavioral   We converted all sums for each fiscal year into  responses and, thus, do not represent the revenue amount that would be  gained if a specific tax expenditure was repealed.
section_title: Fiscal Year 2011 Analysis of Treasury Tax Expenditure Estimates and Internal Revenue Service Data on Number of Recipients
paragraphs: For 2011, we analyzed those tax expenditures with only estimated  corporate revenue losses and those with both corporate and individual  revenue losses.those that Treasury reported had estimated revenue losses for  corporations in 2011; we describe any tax expenditures that Treasury  estimated lost only corporate tax revenue as corporate-only tax  expenditures. We did not conduct a legal analysis to determine which tax  expenditures are available only to corporations.
For this study, we defined corporate tax expenditures as  To describe the number of taxpayers claiming corporate-only tax  expenditures, we obtained estimates, where available, from the Internal  Revenue Service (IRS) Statistics of Income (SOI) 2010 corporate sample  on the number of corporate taxpayers claiming each of the corporate-only  tax expenditures. These were the most recent estimates available at the  time of our work. Data compiled by IRS SOI is based on a stratified,  random sample of 63,630 corporate income tax returns for 2010 from  corporations that end their corporate year from July 1, 2010, through June  30, 2011. These estimates are subject to sampling errors. Based on the  number of sampled returns and the coefficients of variation provided by  SOI, we estimate that the upper bound of a 95 percent confidence interval  for the estimated total number is less than 830 corporations for the  following tax expenditures: alternative fuel production credit, bio-diesel  and small agri-biodiesel producer tax credits, credit for energy efficient  appliances, employer-provided child care credit, tax credit for orphan drug  research, small life insurance company deduction, and Special Blue  Cross/Blue Shield deduction. For our report, IRS SOI provided data on C  corporations, and we excluded S corporations that pass through to  individual taxpayers. C corporations include active corporations filing tax  forms 1120, 1120-F, 1120-L, and 1120-PC but not tax forms 1120S,  1120-REIT, and 1120-RIC. Overall, IRS SOI was able to provide  estimates for nine tax credits or deductions because these tax  expenditures were reported on an isolated line of an IRS form. However,  for two of those tax credits, the requirement to protect taxpayer  information forced IRS to exclude estimates of the number of tax  recipients of those credits.
We also obtained publicly available fiscal year 2010 data from IRS’s Tax  Exempt and Government Entities division on four corporate-only tax  expenditures. These corporate-only tax expenditures were tax  exemptions and included the exemption of credit union income, tax  exemption of certain insurance companies owned by tax-exempt  organizations, exemption of certain mutuals’ and cooperatives’ income,  and special alternative tax on small property and casualty insurance  companies. For three of the four tax expenditures that we obtained  publicly available data on the number of organizations claiming the tax  exemption, the data represented only a portion of organizations to which  the exemption applies as reporting requirements differ within each of  these tax expenditures. From these two sources, IRS SOI estimates and  publicly available data from IRS’s Tax Exempt and Government Entities  division, we were able to obtain data on the number of taxpayers claiming  13 of the 24 corporate-only tax expenditures, including credits,  deductions, or exemptions. IRS was not able to provide data on the  remaining eleven tax expenditures generally because they could not be  isolated on an IRS form. To assess the reliability of the data and  estimates, we reviewed agency documentation, interviewed agency  officials, and reviewed our prior reports that have used the data and  estimates. While we determined that the Treasury and IRS data and  estimates were sufficiently reliable for our purposes, the IRS SOI  corporate sample may not provide a precise estimate of the number of  taxpayers claiming a tax expenditure when the number of taxpayers is  very small.
section_title: Comparison of Estimated Revenue Losses and Federal Outlays and Reported Purpose and Those Federal Activities That Appear to Share a Similar Purpose
paragraphs: To analyze how large corporate tax expenditures are in comparison to  federal spending by budget function, we summed the estimated revenue  losses for those tax expenditures with corporate revenue losses in fiscal  year 2011 by budget function from the fiscal year 2013 Analytical  Perspectives. We compared them to federal outlays by budget function in  fiscal year 2011, using data from the President’s fiscal year 2013 budget.  Outlay-equivalent estimates—the amount of outlays required to deliver  the same after-tax income as provided through the tax expenditure—may  provide for a more appropriate comparison to federal spending than  estimated revenue losses if particular outlays represent taxable income to  the recipient. However, Treasury no longer estimates outlay equivalent  values for tax expenditures and therefore, estimated revenue losses were  used instead.
For this report we identified related programs based on a narrow reported  purpose specific to the type of entity or activity that the corporate-only tax  expenditures support or target. The corporate-only tax expenditures may  have additional broader or different purposes. Using the narrow reported  purposes allowed us to identify the tax and nontax programs that appear  to most closely support the activity or entity the corporate-only tax  expenditures support. We defined the narrow reported purpose as  providing support for a certain activity or entity or in some cases, where  the materials we reviewed discussed the tax expenditure as intended to  encourage or increase a certain activity, we described the reported  purpose as encouraging that type of activity. To identify the reported  purpose of corporate-only tax expenditures, we reviewed their legislative  histories and prior work by GAO, the Congressional Research Service  (CRS), including the CRS’s 2010 tax expenditure compendium, and the  Congressional Budget Office (CBO) that discussed the intended purpose  or rationale of the tax expenditure. However, in identifying the narrow  reported purposes we were not trying to discern legislative intent. For  some tax expenditures, the reported purpose may be clear from reviewing  these sources, while for others the reported purpose may be more difficult  to determine. Some tax expenditures support a certain type of entity but  the reported purpose or rationale for providing support to that entity is  difficult to determine or may have changed over time. Therefore, we  describe the reported purpose as support for a type of entity, and we did  not reconstruct the historical basis for providing such support.
To identify federal spending programs that appear to share a similar  reported purpose, we searched the October 2012 version of the Catalog  of Federal Domestic Assistance (CFDA) using terms from the description  of the corporate-only tax expenditures. We reviewed programs listed  under the same budget functions and reviewed the descriptions of the  programs initially identified to determine if they appear to share a similar  reported purpose. We identified related tax expenditures by reviewing the  fiscal year 2013 Analytical Perspectives, supplemented with the  description in CRS’s 2010 tax expenditure compendium.
We obtained data from IRS for the tax expenditures identified as related, from the  Department of Energy for the Integrated Biorefineries Program, and for the standards and  regulations identified as related from the Department of Energy and the Environmental  Protection Agency. our analysis of those data or identification of related programs. After  reviewing CFDA documentation, our prior reports that have used the  data, and spot checking these three data element against other publicly  available agency documentation, we determined the data were reliable for  our purposes. In reporting the administering or implementing agencies or  entities, we generally reported the federal department level rather than  the sub-department level agency except for IRS and the Environmental  Protection Agency. In addition, for reporting the type of assistance, we  grouped the types of assistance into the following categories: grant,  cooperative agreement, direct payment, direct loan, guaranteed loan,  insured loan, regulation/standard, tax exclusions, exemptions, or  deductions, tax credits, deferrals of tax, and preferential tax rates. In  some cases, the CFDA identified the programs we identified as providing  multiple types of assistance listed above.
The list of nontax programs we identified that appear to share a similar  specific reported purpose has not been reviewed by the agencies  responsible for them. Treasury and IRS reviewed our identification of  related tax expenditures. The list of tax and nontax programs, shown in  appendix VI, does not represent a comprehensive list of related federal  activities for several reasons:
The CFDA may not capture certain types of federal activities, such as  regulations or standards. Based on our prior work, we were able to  identify some regulatory programs which we believe also appear to  share a similar reported purpose to the tax expenditures in our scope.
The federal spending programs and activities identified may also have  multiple reported purposes, and only a component of the program or  activity may appear to specifically share a similar reported purpose to  the tax expenditure.
Using a broader or different reported purpose to identify federal  activities that appear to share a similar reported purpose would likely  alter the makeup of activities that appear to be related.
We conducted our work from October 2012 to March 2013 in accordance  with all sections of GAO’s Quality Assurance Framework that are relevant  to our objectives. The framework requires that we plan and perform the  engagement to obtain sufficient and appropriate evidence to meet our  stated objectives and to discuss any limitations in our work. We believe  that the information and data obtained, and the analysis conducted,  provide a reasonable basis for any findings and conclusions in this  product.
section_title: Appendix II: Fifty-Six Tax Expenditures with Estimated Corporate and Individual Revenue Losses Reported by Treasury, by Largest Estimated Corporate Revenue Losses, 2011
subsections: section_title: Tax expenditure
paragraphs: Estimated  corporate revenue  losses (dollars in  millions)
Credit to holders of Gulf Tax Credit Bonds.
Exclusion of utility conservation subsidies  Expensing of certain multiperiod production  costs   Accelerated depreciation on rental housing   (20)   (40)
Accelerated depreciation of buildings other  than rental housing  (3,300)
section_title: Total
paragraphs: In addition, the alcohol fuel mixture credit results in a reduction in excise tax receipts of $6,520  million in 2011.
In addition, the small business credit provision has outlay effects of $30 million in 2011.
In addition, the provision for school construction bonds has outlay effects of $430 million in 2011.
In addition, the provision has outlay effects of $20 million in 2011.
section_title: Appendix III: Twenty-Four Tax Expenditures with Only Estimated Corporate Revenue Losses Reported by Treasury, by Largest Estimated Corporate Revenue Losses, 2011
subsections: section_title: Total
paragraphs: In addition, the credit for holders of zone academy bonds had outlay effects totaling $10 million in  2011.
In addition, the biodiesel producer tax credit results in a reduction in excise tax receipts of $760  million in 2011.
These figures do not account for the tonnage tax which shipping companies may opt into in lieu of  the corporate income tax. The tonnage tax reduces the cost of this tax expenditure by $20 per year in  each year of the budget.
section_title: Appendix IV: Number of Corporate Taxpayer Recipients for Corporate-Only Tax Expenditures, 2010
paragraphs: Appendix IV: Number of Corporate Taxpayer  Recipients for Corporate-Only Tax  Expenditures, 2010 Tax expenditure  Tax exemption of certain insurance companies owned  by tax-exempt organizations  Exemption of certain mutuals’ and cooperatives’  income Exemption of credit union income Special alternative tax on small property and casualty  insurance companies Bio-diesel and small agri-biodiesel producer tax credits  Small life insurance company deduction  Tax credit for orphan drug research  Special Blue Cross/Blue Shield deduction  Credit for energy efficient appliances  According to the Internal Revenue Service Statistics of Income division, estimate should be used  with caution due to small number sampled returns claiming this credit.
section_title: Appendix V: Reported Purpose Supporting a Specific Activity or Entity for 24 Corporate- Only Tax Expenditures
subsections: section_title: Number Tax expenditure 1
section_title: Appendix VI: Federal Activities That Appear to Share a Similar Purpose to 24 Corporate- Only Tax Expenditures
subsections: section_title: Number Tax expenditure 1
section_title: Number Tax expenditure 9
section_title: Number Tax expenditure 18
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact name above, MaryLynn Sergent (Assistant  Director), Jason Vassilicos (Analyst-in-Charge), Kevin Daly, Robert  Gebhart, Lois Hanshaw, Natalie Maddox, Donna Miller, Karen O’Conor,  Mark Ryan, and Elwood D. White all made contributions to this report.