How Companies Avoid Tax

How many of the largest corporations in America paid no federal corporate income taxes on their 2020 profits?

• 7

• 18

• 55

• 110

What is the estimated annual cost of corporate tax breaks to the federal government?

• $40 billion

• $180 billion

• $370 billion

• $8.5 billion

What was Amazon's effective federal income tax rate over the four-year period from 2018 to 2021, compared to the standard U.S. federal corporate tax rate of 21%?

• -1.2%

• 1.2%

• 5.1%

• 21%

What is the primary purpose of "book income" for publicly traded corporations?

• To determine the amount of tax owed to the IRS

• To report profits to investors and shareholders

• To track changes in government revenue

• To calculate the international corporate tax rate

How might the deduction of a 10-year investment differ between financial accounting (book income) and tax accounting (taxable income)?

• Financial accounting allows immediate deduction, while tax accounting spreads it over 10 years.

• Tax accounting may allow immediate or accelerated deduction, while financial accounting typically spreads it over 10 years.

• Both financial and tax accounting require the deduction to be spread evenly over 10 years.

• Neither financial nor tax accounting allows for the deduction of such investments.

What is a key difference in how stock options are treated for tax purposes compared to actual cash expenses?

• Stock options are considered actual cash expenses for both tax and financial reporting.

• Companies can write off stock options as if they were cash expenses for tax purposes, even though they are not out-of-pocket cash.

• Stock options are never deductible for tax purposes, only for financial reporting.

• Stock options are only deductible if they are paid out in cash to employees.

What is a significant tax advantage for U.S. multinational companies that engage in offshoring?

• They can completely eliminate all tax obligations in the U.S.

• They can achieve very low tax rates, sometimes as low as 0% to 10.5%, on their foreign profits.

• They receive direct financial grants from foreign governments for operating abroad.

• They are exempt from all international trade tariffs and duties.

How did Whirlpool attempt to avoid taxes on its Mexican profits, according to the example provided?

• By paying all its taxes directly to the U.S. government, bypassing Mexico.

• By structuring its Mexican operations to be owned by a Mexican company with no employees, which was then owned by a Luxembourg holding company with one employee.

• By declaring its Mexican profits as losses for tax purposes.

• By relocating all its manufacturing facilities from Mexico to the U.S.