Ferraro 500 – 2013 Archive

The Ferraro 500 is a reorganization of the Fortune 500 by the size of the companies’ Unrecognized Tax Benefit reserve (“Tax Reserve”). Under the accounting requirements of FIN 48, a company must reserve, or in other words “hold back,” earnings for tax positions for which the company thinks the IRS has a greater likelihood of prevailing than the company. This Tax Reserve amount can be substantial, especially when compared to the annual revenue generated by the company. The issues that make up a company’s Tax Reserve are generally disclosed to the IRS in a concise description on Schedule UTP. However, the details of the issues are contained in the tax accrual work papers of the company. The details in the tax accrual work papers often make for valuable tax whistleblower submissions.

For some Ferraro 500 companies, the reserve amount reflected on the list includes interest and penalties. For example, AT&T’s $5.770 billion reserve includes interest and penalties of $977 million. Similarly, GE’s $6.579 billion reserve amount includes $961 million of interest and $173 million of penalties.

Other Ferraro 500 companies do not include interest and penalties in the unrecognized tax benefits figure; rather, these companies report interest and penalties as selling, general, and administrative expenses, as interest expense, or as part of another item on their financial statements. For these companies, the actual reserve amount exceeds the reserves listed above. For example, Procter & Gamble reported unrecognized tax benefits of $1.773 billion, which does not include interest and penalties of $439 million and $66 million, respectively. Thus, Procter & Gamble’s reserve amount is actually $2.278 billion, $505 million higher than the $1.773 billion figure reflected on the Ferraro 500. Similarly, Chevron did not include $293 million of interest and penalties in its reported $3.071 billion of unrecognized tax benefits. Thus, Chevron’s reserve actually totals $3.364 billion, $293 million higher than the reserve amount above.

N/A is utilized where the UTB reserve could not be determined. Certain insurance companies and certain publically traded partnerships do not report reserve amounts, and as such, the reserve amounts for these companies are not available.

NR is utilized where the company was not on the Ferraro 500 in 2011.

* In past years we have inappropriately calculated the tax reserve. This was due to credit and loss carryovers as well as cash paid to taxing authorities having been deducted from gross tax reserves. Last year the stated reserve on the Ferraro 500 was 812.1; this number was net of $3,212.4 million of credit and loss carryovers and $363.3 million of cash paid to taxing authorities. The gross tax reserves as of December 31, 2011, were $4,387.8 million.

** H.J. Heinz filed their new 10-K on July 9, 2013, which is later than in prior years. Therefore, the tax reserves reported on the most recent 10-K filed prior to June 15, 2013, were the tax reserves for the year ending April 29, 2012. On July 9, 2013, H.J. Heinz filed its 10-K for the year ending April 28, 2013, which reported tax reserves of 45.4 million.

*** Most recent 10-K filed for Tech Data was filed on March 21, 2012.

**** CenterPoint Energy has income tax refund claims pending with the IRS, which CenterPoint Energy claims results in a negative balance for uncertain income tax positions as of December 31, 2012. We leave it to the reader to determine if the reader believes a negative tax reserve is proper under GAAP. All information is believed to be accurate as of June 15, 2013, but Lynam Knott P.A. cannot vouch for the validity of any information contained in any financial statement.

All information is believed to be accurate as of June 15, 2013, but Lynam Knott P.A. cannot vouch for the validity of any information contained in any financial statement.