2013 Ferraro 500 list ranks Uncertain Tax Positions

We released the Ferraro 500 today.  The Ferraro 500 is a reorganization of the Fortune 500 by the size of the companies’ Unrecognized Tax Benefit reserve (“Tax Reserve”) for uncertain tax positions reported in SEC filings.  The 2013 Ferraro 500 showed that collectively the Fortune 500 companies believe that they have underpaid their corporate income tax by $191.7 billion, an increase of 2.2% from the group’s collective tax reserves last year.  According to the Ferraro 500, 2012 saw a slight decrease (-.51%) in the profits of the Fortune 500.  Scott Knott reacted to the data saying, “If uncertain tax position reserves are trending up at the same time profits are going down, you have to ask if there is a movement to build up reserves for tax underpayments.”

The Ferraro Law Firm compiles the annual “Ferraro 500” list, which The Tax Reserves of the top five companies on this year’s list are Exxon Mobil, which set aside $7.663 billion to cover potential taxes; Microsoft, $7.202 billion; J.P. Morgan Chase & Co., $7.158 billion; General Electric, $6.579 billion; and Pfizer, with $6.315 billion.  Pfizer bucked the trend of increasing reserves for uncertain tax positions, disclosing that it reduced its Tax Reserve by almost a billion dollars last year.

Gregory Lynam said, “It also appears many of the companies on the Ferraro 500 are then improperly hiding information behind those reserves from the IRS.”  As of 2010, corporate taxpayers have been required to file a “Schedule UTP” with their annual tax return that lists and discloses the issues that gave rise to their uncertain tax positions.  However, the IRS has discovered that thirty-one percent of last year’s Schedule UTP filers submitted incomplete concise descriptions of their uncertain tax positions, said IRS official Thomas Brandt on a July 17, 2013, webcast sponsored by McGladrey LLP.  Mr. Lynam also said “the IRS data shows that corporate taxpayers believe that filing an incomplete Schedule UTP will go unnoticed by IRS Exam personnel, making tax whistleblowers that much more important to successful enforcement actions.”