That left GE (GE, Fortune 500) with no U.S. profit left for Uncle Sam to tax. Corporations typically face a 35% federal income tax on their earnings. Thanks to its deductions and adjustments, GE reported an actual U.S. federal income tax rate of negative 10.5%. It got to add a "tax benefit" of $1.1 billion back into its reported earnings.
"This is the first time in at least decades that GE has reported negative U.S. pretax income and it reflects the worst economy since the Great Depression," Anne Eisele, GE's director of financial communications, said via e-mail.
But what about the $10.8 billion profit overseas? GE is "indefinitely" deferring income tax payments on those profits, Eisele said.
It may seem like accounting magic, but it's completely legit.
GE isn't the only "Top 5" company on this year's Fortune 500 list that owed no income taxes. Bank of America (BAC, Fortune 500), which suffered major losses in 2009, included a tax benefit of $1.9 billion in its annual profit.
"That's one way of escaping taxes," said Scott Hodge, president of the Tax Foundation. "Companies get to deduct their losses, so if there's no earnings, then they pay no income tax."
But GE isn't exactly escaping all tax-related pain: The company paid almost $23 billion in taxes to governments around the world from 2000 to 2009, Eisele said.
Plus, paying the accountants to crank out 7,000 tax returns can't be cheap.
And then there's all the lawyers needed to defend those returns. GE filed tax paperwork in more than 250 jurisdictions around the world last year. "We are under examination or engaged in tax litigation in many of these jurisdictions," the company dryly notes in its annual report.
GE may not owe the IRS, but it still has to file -- and its filings are epic.
In 2006, as the IRS ramped up its corporate e-filing program, the tax agency actually issued a celebratory press release when it processed GE's tax return. On paper, the return -- the nation's largest -- would have totaled a massive 24,000 pages. But instead, the IRS was able to upload the 237 MB document in under an hour.
Reading it, though, is apparently taking a bit longer. The IRS is currently auditing GE's tax returns for 2003-2007.
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