Corporation income tax returns, 2000 - Illustration

Statistics of Income Bulletin, Summer, 2003 by Lucy Altounian, George Contos

Corporate pre-tax profits, or net income (less deficit), reported on income tax returns for 2000 remained near 1999 levels, decreasing slightly from $929.0 billion for 1999 to $927.5 billion for 2000, or 0.2 percent. Despite this leveling off, there was an increase in profits reported by corporations with positive net income. Corporations also claimed more tax credits for 2000; however, the increase in the tax base was large enough so that the total income tax after credits, the amount payable to the U.S. Government, grew from $193.0 billion for 1999 to $204.0 billion for 2000, an increase of 5.7 percent.

Data Highlights

While both total receipts and total deductions increased for 2000, the decrease in profits was due to total deductions increasing at a higher rate than total receipts. The increase in total receipts from business operations and investments, and in total deductions was nearly equal for 2000.

The number of corporations reporting "positive" pre-tax profits increased by 0.3 percent to 2.8 million; their profits increased from $1,229.3 billion to $1,336.6 billion, an increase of $107.3 billion [1]. Corporations with assets of $250 million or more accounted for over 70 percent of the profits mentioned above (Figure A), The number of corporations reporting net losses increased by 4.8 percent to 2,2 million, and their net losses increased from $300.3 billion to $409.1 billion, an increase of$108.8 billion.

The overall increase in pre-tax positive profits was reflected in the amount corporations reported for "income subject to tax," the tax base for the regular income tax. The tax base increased to $760.4 billion for 2000, an increase of $66.7 billion and 9.6 percent over 1999 (Figure B). Certain corporations that elect to be taxed through their shareholders, in general, pay no Federal income tax directly. More specifically, S corporations, which are not usually taxable at the corporate level, did not have income subject to tax. Some, however, had a limited tax liability on capital gains and certain other income and were, therefore, included in the statistics for this item [2]. While regulated investment companies and real estate investment trusts generally passed their net incomes to be taxed through their shareholders, any amounts not distributed were included in income subject to tax, though the long-term capital gains of regulated investment trusts are excluded from their profits (Figure C).

Paralleling the increase in income subject to tax, "total income tax before credits," rose 10.0 percent to $266.3 billion. This tax is the total of the corporations' U.S. taxes based on their total worldwide profits [3].

Even though the number of corporations reporting the "alternative minimum tax" (AMT) decreased 13.4 percent to 13,135, the AMT itself, represented in the statistics for both "total income tax before credits" and "total income tax after credits," increased 27.0 percent to $3.9 billion.

Income tax after credits grew at a slower rate than income tax before credits because of an increase in the tax credits claimed by corporations. Most of the increase was due to the foreign tax credit, although almost all the credits showed significant increases from 1999. The foreign tax credit alone increased 26.4 percent to $48.5 billion.

Net Income and Income Statement

Pre-tax corporate profits leveled off for Tax Year 2000 following an increase for Tax Year 1999 (Figure D). Pre-tax profits, as they appear in the statistics, were $929.0 billion for 1999 compared to $927.5 billion for 2000 (Figure E). Pre-tax profits of corporations other than pass-through entities decreased 3.2 percent from $535.3 billion for 1999 to $517.9 for 2000. "Pass-through entities" are regulated investment companies, real estate investment trusts, and S corporations (qualifying corporations that pass through allocated profits and losses to their shareholders and, in general, pay no Federal income tax directly). Despite the decreases shown by corporations excluding pass-through entities, pre-tax profits for pass-through entities were up 4.0 percent from $393.7 billion for 1999 to $409.6 billion for 2000. The statistics for pre-tax profits, however, do not include either long-term capital gains reported by regulated investment companies or investment or rental or portfolio income, including capital gains, for S corporations.

Overall, total receipts for 2000 increased by $1.7 trillion from $18.9 trillion to $20.6 trillion, an increase of 9.1 percent; total deductions, including the cost of goods sold, increased by $1.7 trillion from $18.0 trillion to $19.7 trillion, an increase of 9.6 percent. Given that the rate of increase in total deductions was higher than that of total receipts, corporate pretax profits leveled off for 2000.

Many industry sectors including the information sector and the professional, scientific, and technical services sector, showed decreases in pre-tax profits. The decrease in profits was due to total deductions increasing at a higher rate than total receipts, even though both total receipts and total deductions showed increases for 2000. Although those sectors showed decreases, many other sectors including mining and manufacturing saw significant increases in profits.