Monday, April 4, 2011
It is hard to imagine that General Electric (GE), whose nuclear plants have been in the spotlight since the recent Japanese earthquake and subsequent tsunami, would have anything positive to say about that natural disaster, but the media uproar that followed it meant that the world's newspapers were distracted from the multinational corporation's recent SEC filing. That filing, Form 10-K, revealed that in 2010, for the second year in a row, General Electric paid zero federal income taxes.
The 258 page long PDF document was finally analyzed this week by reporters who latched onto phrases like "GE's effective tax rate is reduced because active business income earned and indefinitely reinvested outside the United States is taxed at less than the U.S. rate." The New York Times in particular took pleasure in writing a long-winded four-page diatribe that all but accused GE's tax department, led by John Samuels, a former Treasury official, of committing tax evasion in an effort to avoid paying the 35% federal income tax rate on tax profits.
What most readers of the New York Times, and anyone else not well versed in accounting rules and tax regulations, is likely unaware of, is that tax profits are different than book profits. There are expenses that can be deducted for accounting records but not for tax liabilities and vice versa. Major corporations like GE do complicated calculations each quarter to find out exactly what those differences are so that there are no ugly surprises when they report information to both their shareholders and the taxing authorities. ...
The most ridiculous part of the New York Times' report though was the moronic extrapolation of the statement "U.S. current tax provision on continuing operations" to mean that the $2.7 billion tax benefit listed on GE's accounting records was a check from the IRS. All this means is that during the time period covered, GE erroneously accrued an expense of $3.2 billion in income taxes. When they did not have to pay that income taxes, they reversed that expense.
The bottom line? GE did what it had to do in 2010 to remain in business, which is to obey the laws while staying competitive. The New York Times on the other hand failed to hire competent writers, editors or researchers in 2011.