The base of the federal corporate income tax includes net income from business operations (receipts, minus the costs of purchased goods, labor, interest, and other expenses). It also includes net income that corporations earn in the form of interest, dividends, rent, royalties, and realized capital gains. The statutory rate of tax on net corporate income ranges from 15 to 35 percent, depending on the amount of income earned. The United States taxes the worldwide income of domestic corporations, regardless of where the income is earned, but allows a foreign tax credit for certain taxes paid to other countries. The timing of the tax liability depends on several factors. For example, income earned by foreign subsidiaries is generally not taxed until it is distributed—such as in the form of a dividend—to the U.S. parent corporation. Another important element of the U.S. corporate income tax system is the treatment of losses incurred in a given tax year. If a corporation has a net operating loss in a particular year, the corporation may carry those losses forward into future tax years or backward into prior tax years. When carried back, corporations can deduct those losses from taxable income and are eligible for a refund equal to the difference between previously paid taxes and taxes owed after deducting the current year’s loss. Losses carried forward may be used to reduce future taxable income and tax liabilities, but cannot be used to reduce taxable income below zero. As a result, a corporation with a substantial loss in a particular year may claim deductions stemming from that loss over a number of years in the future. While corporate income taxes have declined markedly as a share of gross domestic product since the 1950s, they remain an important source of federal revenue. In fiscal year 2014, corporate income tax revenue as a share of gross domestic product was 1.9 percent and totaled $321 billion. By comparison, revenues from individual income taxes and from social insurance and retirement receipts (e.g., Medicare) were $1.4 trillion and $1.02 trillion, respectively, in that year. Corporate income taxes accounted for 10.6 percent of all federal revenues in 2014, up from 6.6 percent in 2009, but still below their recent high of 14.7 percent in 2006 (see figure 1). Businesses operating as publicly traded corporations in the United States are required to report the income they earn and the expenses (including taxes) they incur each year according to two separate standards. First, corporations must produce financial statements in accordance with generally accepted accounting principles in order to provide certain information to investors and creditors. The income and expense items reported in these statements are commonly known as book items. Second, U.S. corporations must file corporate income tax returns on which they report income, expenses, and tax liabilities, according to rules set out in the Internal Revenue Code (IRC) and associated Department of the Treasury regulations. While the IRC generally requires that a corporation’s taxable year and overall method of accounting conform to those standards used for financial reporting purposes, specific differences are permitted (and, in some cases, required). These are known as book- tax differences. One important source of book-tax differences is incentives for investment and other specific activities that Congress has chosen to incorporate into the tax code. For example, the bonus depreciation allowance permits businesses to depreciate qualified capital assets much more rapidly than they are permitted to do under financial accounting. As a result, taxable income will be reduced by a greater amount than will book income for the year in which the qualified investment is made. However, in later years (until the asset is completely depreciated), book income will be reduced by greater amounts than will taxable income. Corporations with assets that equal or exceed $10 million are required to report these book-tax differences to IRS on the Schedule M-3 of their income tax returns. In tax year 2012, 42,301 corporations filed a Schedule M-3 return. Of these, 27,546 were profitable according to their financial statements. By comparison, in that same year, there were almost 1.62 million active corporations, which include Schedule M-3 filers. A Schedule M-3 filer is required to report the worldwide income of the entity represented in its financial statements and then follow a well- defined series of steps—subtracting out income and losses of foreign and U.S. entities that are included in the financial statements but not in consolidated tax returns; adding in the income and losses of entities that are included in consolidated tax returns but not in financial statements; and making other adjustments to arrive at the book income of entities included in the federal tax return. Effective tax rates on corporate income can be defined in several ways, each of which provides insights into a different issue. This report focuses on average corporate effective tax rates, which are generally computed as the ratio of taxes paid or tax liabilities accrued in a given year over the net income the corporation earned that year. Average effective tax rates attempt to measure taxes paid as a proportion of economic income. By contrast, the marginal effective tax rate focuses on the tax burden associated with a specific investment (usually over the full life of that investment), and thus is a better measure of the effects that taxes have on incentives to invest. Meanwhile, statutory rates determine the amount of tax liability (before any credits) relative to taxable income, which is defined by tax law and reflects tax benefits and subsidies built into the law. The highest corporate statutory tax rate of 35 percent applies to most large U.S. corporations in years that they report positive amounts of taxable income. To estimate average effective tax rates, analysts need two components: 1. The measure of tax liabilities to be used as the numerator. Common current book tax expense, including either only federal taxes or worldwide taxes—federal, foreign, and U.S. state and local income taxes paid by entities included in the federal tax return, total book tax expense, which includes the sum of current and deferred taxes (again, either federal only or worldwide), and actual tax paid, which is what corporations report as their income tax liability after credits. 2. The measure of income to be used as the denominator. The typical measure of income for effective tax rate estimates based on financial statements has been some variant of pretax net book income, which we use for all of our ETR estimates. In each tax year from 2006 to 2012 at least two-thirds of active U.S. corporations had no federal income tax liability after credits (see figure 2). The percentage of such corporations with no tax liability remained relatively stable, ranging between 67 and 72 percent during that timeframe. In tax year 2012, 70.1 percent of the 1.62 million active corporations had no federal income tax liability with the peak coming in 2009 near the end of the recession. Among large corporations for 2012, less than half—42.3 percent, or 17,882 returns—had no federal income tax after accounting for tax credits. Among profitable large corporations, 19.5 percent, or 5,359 returns, had no federal income tax liability in tax year 2012. Corporations that did have a federal corporate income tax liability for tax year 2012 owed $267.5 billion. Corporations may pay no federal income tax for a number of reasons. One important reason is that in each of the years from 2008 to 2012, between approximately 49 to 54 percent of all active corporations had negative net tax income based on federal tax accounting rules. Large corporations were less likely to have incurred losses. In each year during that period, between 34.9 percent and 44.2 percent of Schedule M-3 filers had negative net tax income. A second reason is that other corporations had positive net tax income that was completely offset by net operating loss deductions (NOLD) carried forward from prior tax years. In each year from 2008 to 2012, approximately 15 to 19 percent of all active corporations had their income completely offset in this manner. Similar percentages of all and profitable large corporations had their income completely offset by NOLDs from 2008 to 2012. The use of federal tax credits appears to have had little effect on the number of corporations that paid no tax in each year (this does not imply that these credits did not significantly reduce the amount of tax that some corporations paid). For all active corporations, federal tax credits increased the percentage of corporations not paying tax by less than one percentage point each year. Much the same was true for all and profitable large corporations (see appendix III). For tax year 2012, the actual U.S. federal income taxes paid by profitable large corporations amounted to 16.1 percent of the income that those corporations reported in their financial statements (for those entities included in their tax returns); this federal effective tax rate averaged 14 percent from tax years 2008 to 2012 (see the first panel of figure 3). This tax rate is slightly lower than the 17.3 percent rate based on the current federal book tax expense, and the 18.5 percent rate based on total federal book tax expenses for tax year 2012, which includes current and deferred federal book tax expenses. Each averaged 15.3 percent and 18.6 percent, respectively, from tax years 2008 to 2012. The subject matter experts with whom we spoke suggested it would be of interest to estimate what profitable large corporations would have paid in the current year if one did not take into account the deductions that corporations are allowed to take for losses carried forward from prior years. Adjusting for these net operating loss deductions (NOLD) raises the effective rate of actual U.S. federal taxes paid to 19.5 percent in tax year 2012 and averaged 16.5 percent from tax years 2008 to 2012. These rates were 2.6 percentage points higher than the unadjusted rates (see figure 3). Even with the adjustment for NOLDs, these ETRs remain well below the top statutory federal income tax rate of 35 percent for a number of reasons. First, to the extent that corporations have foreign-source income on which they have paid tax to foreign governments, their U.S. federal income tax will be reduced by the foreign tax credit. Also, as noted earlier, tax incentives, such as the bonus depreciation allowance, will cause taxable income (on which the actual federal tax is based) to be less than book income (which is the denominator of the ETR). Other types of differences between financial statement and tax accounting can have the same effect. The second panel of figure 3 presents ETRs that incorporate the worldwide taxes of entities included in the federal tax returns of Schedule M-3 filers. These worldwide ETRs for profitable large corporations ranged between 3.5 and 8.7 percentage points higher than comparable federal ETRs. For example, from tax years 2008 to 2012, the actual worldwide taxes paid by profitable large corporations averaged 22.2 percent of the income that those corporations reported in their financial statements (for those entities included in their tax returns). As was the case with the federal ETRs for profitable large corporations, the worldwide ETRs have increased somewhat since tax year 2010. These measures do not include income earned by foreign subsidiaries or the taxes that those foreign subsidiaries pay, except in the cases where that income is repatriated to U.S. corporations in the form of dividends or falls into certain categories of income that are taxed immediately under federal tax rules. In our May 2013 report and in this report, we present ETR estimates for all large corporations as well as for the population of profitable Schedule M-3 filers. Our estimates for profitable large corporations are not intended to represent the tax burdens of all large corporations; their purpose is to provide a more accurate picture of the tax burden for the significant subpopulation of corporations that are profitable in a particular year without the distortion caused by the losses of other corporations. Profitable large corporations represented between 56 percent and 57 percent of all large corporations from 2008 through 2009; from 2010 through 2012, they represented between 64 percent and 65 percent of all filers. Some of the past studies we identified in our May 2013 report and during the course of this report have excluded unprofitable corporations; others have not (see appendix II). In tax year 2012, all corporate returns with a Schedule M-3, including those with current-year losses, paid actual U.S. federal income taxes amounting to 21.2 percent of the income that they reported. Based on current and total book tax expenses, these corporations had ETRs of 21.8 percent and 22.3 percent, respectively (see the first panel of figure 4). On average, over tax years 2008 to 2012, all large corporations actually paid 25.9 percent of their pretax net income in U.S. federal income taxes. The inclusion of large corporations with losses raises federal ETRs between 3 and 15 percentage points higher than those of large profitable corporations for years in which ETRs are calculated for both, including tax years 2009 to 2012. This increase occurs because firms with current year losses, which pay little if any actual tax, have a negligible effect on the numerator of the ETR, but their losses can significantly reduce the pretax net book income in the denominator. For example, in tax year 2009, profitable large corporations had pretax net book income of $1.187 trillion, while unprofitable large corporations had net current year losses of $619 billion, netting to a pretax book income of $568 billion. The inclusion of large corporations with current year losses in that year more than doubles the ETR based on actual federal taxes paid in comparison to the rate for only profitable large corporations. In tax year 2008, the losses of unprofitable large corporations more than completely offset the income of profitable large corporations, resulting in negative pretax net book income. Consequently, we were not able to compute ETRs for all large corporations in that year. From tax years 2008 to 2012, worldwide ETRs for all large corporations, which includes federal, foreign, and state and local taxes paid by entities included in federal tax returns, ranged between almost 5 to more than 16 percentage points greater than comparable federal ETRs for all large corporations (see figure 4). Over those tax years, ETRs averaged 40 percent when foreign and state and local taxes are included. We provided a draft of this report to the Commissioner of Internal Revenue for review and comment. IRS provided technical comments, which were incorporated, as appropriate. As agreed with your office, 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 the Chairmen and Ranking Members of other Senate and House committees and subcommittees that have appropriation, authorization, and oversight responsibilities for IRS. We will also send copies of the report to the Commissioner of Internal Revenue and other interested parties. In addition, this report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions or wish to discuss the material in this report further, please contact me at (202) 512-9110 or LucasJudyJ@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 V. In this report, we present effective tax rate (ETR) estimates for both profitable and all corporations. As we noted, the first set of estimates provides meaningful information for an important population of firms without the distortion caused by the losses of other corporations. The second set of estimates covers a more comprehensive population of firms; however, an ETR is not meaningful for a corporation in a year in which it has a net loss. Consequently, it is not clear how to interpret average ETRs for populations that include some corporations with net income and others with net losses for a given year. The simplified example in table 1 demonstrates the nature of this problem. In this example, Corporation A is profitable in all years, while Corporation B incurs losses in the first 2 years, which it then offsets against its income in the third year. A weighted average ETR based on the combined data for the two corporations for all 3 years provides an accurate representation at the aggregate level of the tax burden on income earned in those 3 years (35 percent). However, when the time period is limited so that not all losses can be used during the period, the estimates do not give an accurate representation of the longer term rates. The average for the first 2 years (70 percent) overstates the burden because it does not include the income against which Corporation B’s losses during these 2 years is actually offset. Instead, those losses offset a completely different corporation’s income. Conversely, the average for the last 2 years (26.3 percent) understates the burden over the 3-year period because losses incurred outside of the 2-year period are used to reduce tax payments during the period. The types of distortions shown in this example arise at the beginning and end of any finite period of analysis. losses would be to reduce pretax net book income in the denominator by the amount of NOLDs used in that year. The estimate that results from this approach shows the ETRs on the portion of current-year income that was not offset by prior-year losses. As seen in table 2, compared with our original actual taxes paid ETRs for profitable corporations, the estimates that are adjusted for NOLDs are slightly higher. None of these ETRs for corporations that are profitable in a given year is meant to represent the tax burden averaged across all corporations (both profitable and unprofitable ones). In commenting on our May 2013 report on ETRs, at least one person stated that ETRs for the full population of corporations are more appropriate for policymakers. In our view, the choice of which ETR measure to examine depends on the specific question being considered. In many cases it is more instructive to examine the distribution of ETRs across different subpopulations of corporations. With detailed taxpayer- level data one might track individual corporations from year to year to address timing issues relating to losses. We did not have access under the law to such data for this report. The scope of the data available to us from Schedule M-3 and Form 1120 limited our ability to estimate worldwide ETRs for the large corporations (Schedule M-3 filers). As noted above, our estimated worldwide ETRs represent the burden of taxes paid and income received by entities that are included in federal tax returns. These measures do not include income earned by foreign subsidiaries or the taxes that those foreign subsidiaries pay, except in the cases where that income is repatriated to U.S. corporations in the form of dividends or falls into certain categories of income that are taxed immediately under federal tax rules. In the remainder of this section, we compare the data on worldwide taxes available to us for this report with the data we used for our previous report. First, we need to describe some of the relevant U.S. tax rules applying to foreign-source income. The United States taxes domestic corporations on their worldwide income, regardless of where it is earned. A U.S. corporation may directly or indirectly own shares of stock of other corporations both foreign and domestic; if the U.S. corporation owns all or a significant number of shares of stock, it may be considered a parent and the other corporation a subsidiary. In general, a U.S. taxpayer who owns stock in a corporation is not taxed on income earned by the corporation when it is earned, but taxed when it is distributed to the taxpayer, such as in the form of dividends. When the taxpayer is a U.S. corporation and it owns shares of a foreign corporation in a jurisdiction with a lower corporate tax rate than that of the United States, this can result in what is known as deferral. However, the Internal Revenue Code (IRC) has antideferral provisions which limit deferral in certain circumstances. For example, if a foreign entity is a Controlled Foreign Corporation, as defined in statute, then certain U.S. shareholders, such as parent corporations, are taxed on their share of certain income earned by the Controlled Foreign Corporation when it is earned. The income of a Controlled Foreign Corporation to be included in U.S. shareholders’ income includes the income defined in subpart F (often called Subpart F income) and earnings of the Controlled Foreign Corporation invested in U.S. property. Major types of Subpart F income include income from passive investments, income from transactions with entities related to the Controlled Foreign Corporation, and insurance income as well as certain other easily manipulated income, which are ineligible for deferral. When income is deemed to be received by the U.S. corporation in this way, it may have already been taxed in the foreign country where it was earned. The IRC allows U.S. parent corporations to claim a foreign tax credit for taxes paid to other countries so that foreign source income, such as repatriated dividends and Subpart F income, is not taxed twice. This results in U.S. corporations paying federal income tax on foreign-source income only to the extent that the federal income tax on that income exceeds the foreign tax credit. Section 78 of the IRC requires U.S. corporations electing to claim the foreign tax credit to “gross-up” (i.e., increase) their dividend income by the amount of creditable foreign income taxes associated with the dividends they received. Similar requirements apply to Subpart F income. For our prior report we did not have data relating to the amount of foreign tax credits claimed by our population of profitable large corporations. As a substitute for the amount of foreign taxes paid, we used the current foreign tax expenses and foreign withholding tax expenses that the taxpayers reported in their financial statements. In the case of repatriated dividends, our measure included foreign taxes paid on the dividends themselves, but not any foreign tax paid on the subsidiaries’ income out of which the dividends were paid. In the latest data we obtained from the Internal Revenue Service (IRS), we do have amounts for the foreign tax credits claimed in 2012 by the profitable corporations. The new data also enabled us to make reliable estimates of the foreign tax credits claimed in 2010 and 2011; however, we could not make similar estimates for earlier years. Although this new measure includes the most comprehensive measure of foreign taxes available in our database, it does not achieve a perfect alignment between the taxes included in the numerator and the income included in the denominator. Nevertheless, after discussions with analysts from IRS and Department of the Treasury, we concluded that this new measure represents the closest alignment between income and the taxes paid thereon that is possible with the aggregated Schedule M-3 data available to us. More importantly, as we mentioned in the body of our report, regardless of the adjustments we make above, our worldwide ETR estimates do not represent a comprehensive worldwide ETR. They do not account for income not repatriated by Controlled Foreign Corporations and the foreign taxes paid on that income. Data do not exist to measure both the complete worldwide income of U.S. corporate groups and the actual taxes that they pay. A truly comprehensive rate could be either higher or lower than the ones we report. The rate of foreign tax paid on income that Controlled Foreign Corporations choose to repatriate may be higher than the rate paid on foreign income that is not repatriated. Since the U.S. tax system provides a foreign tax credit to U.S. corporations on foreign taxes paid when income is repatriated, it may create an incentive for Controlled Foreign Corporations to repatriate income earned in high tax countries, so that U.S. parent corporations can claim the full foreign tax credit amount. In contrast, as the foreign tax rate decreases, the U.S. tax due when the income is repatriated increases, creating a disincentive to repatriate income earned in low tax countries. We used the criteria in our May 2013 report for selecting studies that included estimates of corporate effective tax rates (ETR). Specifically, a study had to have (1) used financial statement data to estimate average ETRs for U.S. corporations, (2) employed pretax worldwide book income as the denominator of its ETR calculations, and (3) covered at least one tax year since 2001. In the previous report, these criteria identified eight studies. PricewaterhouseCoopers LLP, Global Effective Tax Rates. April 14, 2011. Markle, Kevin S. and Douglas A. Shackelford (1). “Cross-Country Comparisons of Corporate Income Taxes.” National Tax Journal, vol. 65, no. 3. 2012: 493-528. Costa, Melissa and Jennifer Gravelle, “Taxing Multinational Corporations: Average Tax Rates.” Symposium on International Taxation and Competitiveness, 65 Tax L. Rev. 391. 2012. Lee, Namryoung and Charles Swenson. “Is It a Level Playing Field? An Analysis of Effective Tax Rates.” Tax Notes International. May 25, 2009: 685-693. Markle, Kevin S. and Douglas Shackelford (2). Do Multinationals or Domestic Firms Face Higher Effective Tax Rates? National Bureau of Economic Research, Working Paper 15091. June 2009. http://www.nber.org/papers/w15091. Blouin, Jennifer L. and Irem Tuna. Tax Contingencies: Cushioning the Blow to Earnings? Working Paper. April 2007. Hanlon, Michelle and Edward L. Maydew. “Book-Tax Conformity: Implications for Multinational Firms.” National Tax Journal, vol. 62, no. 1. March 2009: 127-153. Dyreng, Scott D., Michelle Hanlon, and Edward L. Maydew. “Long- Run Corporate Tax Avoidance,” The Accounting Review, vol. 83, no. 1. 2008: 61-82. For our report, we searched for studies released after March 2013. Our search yielded the following seven: Dyreng, Scott D., Michelle Hanlon, Edward L. Maydew, and Jacob R. Thornock. Changes in Corporate Effective Tax Rates Over the Past Twenty-Five Years. Social Science Research Network. October 2014: 1-58. Accessed October 8, 2015. http://ssrn.com/abstract=2521497. Blouin, Jennifer. “Defining and Measuring Tax Planning Aggressiveness.” National Tax Journal, vol. 67, no. 4. 2014:875-900. Hope, Ole-Kristan, Mark (Shuai) Ma, and Wayne B. Thomas. “Tax Avoidance and Geographic Earnings Disclosure.” Journal of Accounting and Economics, vol. 56. 2013:170-189. Jiménez-Angueira, Carlos and Larry Ochoa, “The Determinants and Market Implications of Long-run Effective Tax Rates.” The Journal of Theoretical Accounting Research, vol. 9.2. Spring 2014: 58-106. Markle, Kevin S. and Douglas A. Shackelford. The Impact of Headquarter and Subsidiary Locations on Multinationals’ Effective Tax Rates. National Bureau of Economic Research Working Paper 19621. November 2013. Accessed October 1, 2015. http://www.nber.org/papers/w19621. Carlos Jiménez-Angueira. “The Effect of Tax Regime Changes on the Market Valuation of Tax Avoidance?” Journal of Finance and Accountancy, vol. 15. April 2014: 1-20. Crabtree, Aaron D. and Thomas R. Kubick, “Corporate Tax Avoidance and the Timeliness of Annual Earnings Announcements,” Review of Quantitative Finance and Accounting, vol. 42. January 2014: 51-67. As indicated in figure 5, these studies used a variety of measures of worldwide taxes for their numerator in order to calculate their respective corporate effective tax rates. Four of the seven studies we identified excluded corporations with negative book income from their ETR calculations. It is difficult to make close comparisons between our results and estimates from those of prior studies based on financial statement data below because most of the latter estimates are averaged over multiple years for which we have no data. The following two tables present data on the number of corporations with and without federal income tax liability for tax years 2006 to 2012. Data are presented for all active corporations as well as all and profitable large corporations that filed a Schedule M-3. Appendix IV: Average Federal and Worldwide Effective Tax Rates for Varying Populations of Large Corporations (Schedule M-3 Filers) The following two tables present effective tax rate estimates for all and profitable large corporations that filed a Schedule M-3. We present effective tax rates for all large corporations for tax years 2006 through 2012 and for profitable large corporations for tax years 2008 to 2012. In addition to the contact named above, James Wozny, Assistant Director, Lissette Baylor, Karen O’Conor, Robert Gebhart, Donna Miller, Ed Nannenhorn, Alan Rozzi, A.J. Stephens, Jennifer Stratton, and Jason Vassilicos made significant contributions to this report.

Summary: Congress and the administration continue to express interest in reforming the U.S. corporate income tax and the rate at which U.S. corporations' income is taxed. Currently, the top statutory corporate income tax rate is 35 percent. GAO's 2013 report on corporate ETRs found that in tax year 2010, whether for all large corporate filers or only profitable ones, the average ETRs were significantly below the statutory rate. To provide an update, GAO was asked to assess the extent to which U.S. corporations pay federal income tax and the percentage that had no federal income tax liability. In this report, GAO estimates (1) the percentage of all and large corporations that had no federal income tax liability and (2) average ETRs based on financial statement reporting and tax reporting. To conduct this work, GAO reviewed economic literature, analyzed IRS data for tax years 2006 to 2012 (the most recent data available), including the financial and tax information that large corporations report on Schedule M-3, and interviewed Internal Revenue Service (IRS) officials and subject matter experts. In each year from 2006 to 2012, at least two-thirds of all active corporations had no federal income tax liability. Larger corporations were more likely to owe tax. Among large corporations (generally those with at least $10 million in assets) less than half—42.3 percent—paid no federal income tax in 2012. Of those large corporations whose financial statements reported a profit, 19.5 percent paid no federal income tax that year. Reasons why even profitable corporations may have paid no federal tax in a given year include the use of tax deductions for losses carried forward from prior years and tax incentives, such as depreciation allowances that are more generous in the federal tax code than those allowed for financial accounting purposes. Corporations that did have a federal corporate income tax liability for tax year 2012 owed $267.5 billion. These reasons also explain why corporate effective tax rates (ETR) can differ substantially from statutory tax rates. ETRs attempt to measure taxes paid as a proportion of economic income, while statutory rates indicate the amount of tax liability (before any credits) relative to taxable income, which is defined by tax law and reflects tax benefits built into the law. The statutory tax rate on net corporate income ranges from 15 to 35 percent, depending on the amount of income earned. For tax years 2008 to 2012, profitable large U.S. corporations paid, on average, U.S. federal income taxes amounting to about 14 percent of the pretax net income that they reported in their financial statements (for those entities included in their tax returns). When foreign and state and local income taxes are included, the average ETR across all of those years increases to just over 22 percent. GAO also computed ETRs that combine large profitable corporations and those large corporations with current year losses, which pay little if any actual tax. Over tax years 2008 to 2012, all large corporations—profitable and those that reported current year losses—paid 25.9 percent of their pretax net income in U.S. federal income taxes, and 40.1 percent when foreign and state and local taxes are included. Including corporations with losses results in a more comprehensive estimate, but makes the results difficult to interpret because ETR is not meaningful for a corporation in a year in which it has a net loss. GAO could not examine the variation in ETRs across corporations with the aggregated data available, although GAO's prior work suggests that ETRs are likely to vary considerably. GAO does not make recommendations in this report. GAO provided a draft of this report to IRS for review and comment. IRS provided technical comments, which were incorporated, as appropriate.