Ferraro 500 – 2014 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 $5.261 billion reserve includes interest and penalties of $1.034 billion. Similarly, GE’s $6.955 billion reserve amount includes $975 million of interest and $164 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 $1.6 billion, which does not include interest and penalties of $413 million and $34 million, respectively. Thus, Procter & Gamble’s reserve amount is actually $2.353 billion, $447 million higher than the $1.6 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 $4.063 billion, $215 million higher than the reserve amount above.

N/A is utilized where the UTB reserve could not be determined. Certain insurance companies and certain publicly 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 2013.

*In past years we have inappropriately calculated the tax reserve due to confusion over whether the subsidiaries’ tax reserves were included in the tax reserve reported for Ameren Corporation. Last year the Ferraro 500 listed Ameren Corporation’s tax reserve as $320 million; however, this double counted Ameren Corporation’s subsidiaries’ tax reserves. This number should have been 156.

**Aramark Corp.’s most recent 10-K was filed on December 20, 2012. Aramark Holding Corporation has yet to file a 10-K for 2013.

***Tech Data Corp filed the 10-K for 2012 in 2014. Reserve number in prior year column is from 2011.

All information is believed to be accurate as of June 15, 2014, but Lynam Knott P.A. cannot vouch for the validity of any information contained in any financial statement.