June 9, 2016 09:14 AM | Permalink |
Tech Companies, Big Banks Worst Offenders When It Comes to Writing off Executive Compensation to Avoid Billions in Taxes
New Report Finds 315 Fortune 500 Companies Used “Stock Option Loophole” to Collectively Avoid $64.5 Billion in State and Federal Taxes
From 2011 to 2015, the executive stock option loophole enabled Fortune 500 companies to lavish their executives with salary in the form of stock and later write off the compensation to reduce their tax bills by, in some cases, billions, a new report released today by Citizens for Tax Justice found.
CTJ analysts reviewed financial filings and found that 315 Fortune 500 firms collectively avoided $64.6 billion in federal and state taxes over five years using the executive stock option loophole. Annually, they dodge an average $13 billion. The five biggest offenders are the most recognizable tech companies and financial firms: Facebook, Apple, Google, Goldman Sachs and J P Morgan Chase.
“This loophole means taxpayers are essentially underwriting lavish executive compensation,” said Robert McIntyre, executive director of CTJ. “Corporations in some cases give executives millions in stock options and then they ask taxpayers to help pick up the tab by taking tax deductions.”
Most big corporations give their executives benefits in the form of allowing them to buy the company’s stock at a favorable price in the future. When employees exercise these “executive stock options,” corporations can take a tax deduction for the difference between what the employees pay for the stock and what it is worth, even though it costs them nothing to issue the options.
- 315 corporations reduced their federal and state corporate income taxes by a combined total of $64.6 billion over the last five years by using the excess stock option tax break.
- In 2015, the tax break cut Fortune 500 income taxes by $14.8 billion.
- Just 25 companies received half of the total excess stock option tax benefits accruing to Fortune 500 corporations over the past five years.
- Facebook and Apple received about 9 percent and 7 percent of the total excess stock option tax benefits during this period, enjoying $5.7 and $4.7 billion in stock option tax breaks respectively over the past five years.
- Financial giants, JP Morgan, Goldman Sachs and Wells Fargo collectively received about 8 percent of the total.
- Over the past five years, Facebook slashed its federal and state income taxes by 70 percent using this single tax break.