Ferraro 500 – 2011 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 currently make up a company’s Tax Reserve are not generally disclosed to the IRS but rather 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 $5.689 billion reserve includes interest and penalties of $1.329 billion. Similarly, GE’s $7.448 billion reserve amount includes $1.200 billion of interest and $109 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 $1.797 billion, which does not include interest and penalties of $622 million and $89 million, respectively. Thus, Procter & Gamble’s reserve amount is actually $2.508 billion, $711 million higher than the $1.797 billion figure reflected on the Ferraro 500. Similarly, Chevron did not include $225 million of interest and penalties in its reported $3.507 billion of unrecognized tax benefits. Thus, Chevron’s reserve actually totals $3.732 billion, $225 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.
All information is believed to be accurate as of June 15, 2011, but Lynam Knott P.A. cannot vouch for the validity of any information contained in any financial statement.