The Fortune 500 is an annual list compiled by
Fortune that ranks the 500 largest corporations in the U.S. by total revenue. Last year,
Fortune reported that 55 of those companies paid zero federal income tax for the year, mostly due to exploiting a difference between so-called book income and tax income.
Book income is a comprehensive view of a company's financial situation, which shareholders use to assess a corporation's health, and follows Generally Accepted Accounting Principles (GAAP). Meanwhile tax income is, generally, book income minus expenses and deductions.
Under the current system, some companies that appear profitable when filing book income financial statements to the Securities and Exchange Commission (SEC), can report as unprofitable when filing tax income to the Internal Revenue Service (IRS).
Under IRS standards, companies are able to deduct certain expenses from their taxable income, such as investments on building new factories or payments on employee stock options. Put together, those expenses help corporations significantly reduce their level of taxable income.
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