Tax Guru-Ker$tetter Letter
Tuesday, July 09, 2002
Corporate Tax Returns
Bruce Bartlett expands on my earlier comments on the different accounting methods used by large corporations on their income tax returns versus the financial statements that are provided to investors. He has some additional good ideas to ponder.
The US Commerce Dept's GDP (gross domestic product) statistic, one of the most often used barometers of the nation's economic activity, is compiled from data that had been submitted to IRS. On the other hand, the S&P (Standard & Poors) 500 earnings reports are based on the investor financial statements as submitted to the SEC. In an ironic twist, this means that the GDP figures are actually the more accurate representation of true corporate profits because corporations do everything they can to tell IRS that their profits are truly as low as possible.
Release Corp Tax Returns
Because of the more accurate nature of corporate tax returns, Mr. Bartlett recommends that corporations be required to open them to the public as a condition of being listed on the major stock exchanges. As someone who prepares several corporate tax returns each year, I had to mull this idea over for a bit. At first blush, tax returns are privileged information between the taxpayers and the IRS and the public has no business prying into it.
However, on the other hand, stockholders of a corporation are entitled to complete fiduciary responsibility by the corporate officers. When I prepare corporate returns where there are multiple stockholders, I have always taken for granted my obligation to make copies of the returns for each owner. When a person is considering the purchase of a small corporation, some of the most essential documents to review are previous corporate income tax returns. Extrapolating out to the world of huge corporations, any investor or potential investor should be entitled to the same level of disclosure.