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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

March 2013: 

Corporate Tax Expenditures: 

Information on Estimated Revenue Losses and Related Federal Spending 
Programs: 

GAO-13-339: 

GAO Highlights: 

Highlights of GAO-13-339, a report to congressional requesters. 

Why GAO Did This Study: 

Tax expenditures-—special exemptions and exclusions, credits, 
deductions, deferrals, and preferential tax rates claimed by 
corporations, individuals, or both—-support federal policy goals but 
result in revenue forgone by the federal government. Congress and the 
administration are reexamining tax expenditures used by corporations 
as part of corporate tax reform. GAO was asked to examine issues 
related to corporate tax expenditures. This report: (1) describes 
trends in the number of corporate tax expenditures and estimated 
corporate revenue losses since 1986; (2) describes the use of 
corporate tax expenditures in 2011; and (3) compares the size of 
corporate tax expenditures to federal spending by budget function and, 
for tax expenditures used only by corporations, identifies spending 
programs with similar purposes. 

To address these objectives, GAO analyzed Department of the Treasury 
estimates of tax expenditure revenue losses from 1986 to 2011 and 
Internal Revenue Service 2010 data and interviewed agency officials. 
GAO also reviewed the legislative history and relevant studies to 
determine the reported purpose of corporate-only tax expenditures, and 
searched federal program lists to identify federal spending programs 
that appear to share a reported specific purpose similar to corporate-
only tax expenditures. The programs identified as related were not 
reviewed by the agencies responsible for the programs. 

What GAO Found: 

Estimated tax revenue that the federal government forgoes resulting 
from corporate tax expenditures increased over the past few decades as 
did the total number of corporate tax expenditures. In 2011, the 
Department of the Treasury estimated 80 tax expenditures resulted in 
the government forgoing corporate tax revenue totaling more than $181 
billion. Many of these tax expenditures are broadly available to both 
corporate and individual taxpayers. More than two-thirds or 56 of the 
80 tax expenditures used by corporations in 2011 were also used by 
individual taxpayers, such as other types of businesses not organized 
as corporations. Modifying any of these 56 tax expenditures as part of 
broader corporate tax reform would likely affect both corporate and 
individual taxpayers to some degree. 

Figure: Estimated Federal Tax Revenue Losses for Corporate Tax 
Expenditures, 2011: 

[Refer to PDF for image: stacked horizontal bar graph] 

56 tax expenditures used by corporations and individuals resulting in 
estimated federal revenue losses: 
Estimated revenue losses resulting from individual use of tax 
expenditures: $122.4 billion; 
Estimated revenue losses resulting from corporate use of tax 
expenditures: $125.0 billion; 
Total Estimated Federal Tax Revenue Losses for Corporate Tax 
Expenditures: $247.4 billion. 

24 tax expenditures used only by corporations resulting in estimated 
federal revenue losses: 
Estimated revenue losses resulting from corporate use of tax 
expenditures: $58.9 billion; 
Total Estimated Federal Tax Revenue Losses for Corporate Tax 
Expenditures: $58.9 billion. 

Source: GAO analysis of Office of Management and Budget budget data on 
tax expenditures, fiscal year 2013. 

Note: Sum of estimated revenue losses does not include outlay effects 
or reductions in excise tax receipts. Tax expenditures may be 
available to corporate and individual taxpayers, including other types 
of business entities other than corporations. According to the 
Department of the Treasury’s estimates, some tax expenditures may be 
used by only corporate taxpayers and some by only individual taxpayers 
while other tax expenditures may be used by both corporate and 
individual taxpayers. 

[End of figure] 

Corporate tax expenditures span a majority of federal mission areas, 
but their relative size differs across budget functions. The 80 
corporate tax expenditures had estimated revenue losses in 12 of the 
18 budget functions in 2011. Of the $181 billion in estimated 
corporate tax revenue losses, 81 percent was concentrated in the 
international affairs and housing and commerce budget functions, 
exceeding federal outlays in those budget functions. The 24 tax 
expenditures used only by corporations in 2011 provide support 
intended to encourage certain activities, such as energy production, 
or provide support for certain entity types, such as credit unions. A 
corporate tax expenditure may have multiple purposes: one narrowly 
focused on a specific activity or entity as well as broader or 
additional purposes pursuing national priorities or other activities. 
For example, 7 of the 24 corporate-only tax expenditures are aimed at 
encouraging or supporting specific energy sources and technologies, 
and these tax expenditures may also have broader national purposes 
such as promoting domestic energy production and energy security. In 
examining their narrowly focused reported purposes, one-third of the 
24 corporate-only tax expenditures appear to share a similar purpose 
with at least one federal spending program. 

What GAO Recommends: 

GAO made no recommendations in this report. Treasury provided 
technical comments that were incorporated, as appropriate; IRS had no 
comments. 

View [hyperlink, http://www.gao.gov/products/GAO-13-339]. For more 
information, contact James R. White at (202) 512-9110 or 
whitej@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Estimated Revenue Losses from Corporate Tax Expenditures and the 
Number of Corporate Tax Expenditures Have Increased Since 1986: 

More Than Two-Thirds of Corporate Tax Expenditures Are Also Used by 
Individuals: 

Corporate Tax Expenditures Span Many Budget Functions; One-Third of 
Corporate-Only Tax Expenditures Share a Similar Purpose with Federal 
Spending Programs: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Fifty-Six Tax Expenditures with Estimated Corporate and 
Individual Revenue Losses Reported by Treasury, by Largest Estimated 
Corporate Revenue Losses, 2011: 

Appendix III: Twenty-Four Tax Expenditures with Only Estimated 
Corporate Revenue Losses Reported by Treasury, by Largest Estimated 
Corporate Revenue Losses, 2011: 

Appendix IV: Number of Corporate Taxpayer Recipients for Corporate-
Only Tax Expenditures, 2010: 

Appendix V: Reported Purpose Supporting a Specific Activity or Entity 
for 24 Corporate-Only Tax Expenditures: 

Appendix VI: Federal Activities That Appear to Share a Similar Purpose 
to 24 Corporate-Only Tax Expenditures: 

Appendix VII: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Seven Largest Corporate Tax Expenditures, 2011: 

Table 2: Numbers and Estimated Federal Revenue Losses Resulting from 
Corporate Tax Expenditures by Budget Function, 2011: 

Figures: 

Figure 1: Comparison of Estimated Federal Tax Revenue Loss Due to Tax 
Expenditures for Corporations and Individuals Reported by Treasury, 
1986 through 2011: 

Figure 2: Number of Corporate Tax Expenditures Reported by Treasury, 
1986 through 2011: 

Figure 3: Estimated Federal Tax Revenue Losses Resulting from 
Corporate Tax Expenditures, 2011: 

Figure 4: Historical Basis for the Tax Exemption of Credit Union 
Income: 

Abbreviations: 

CFDA: Catalog of Federal Domestic Assistance: 

CBO: Congressional Budget Office: 

CRS: Congressional Research Service: 

GDP: gross domestic product: 

GPRAMA: Government Performance and Results Act Modernization Act of 
2010: 

IRS: Internal Revenue Service: 

SOI: Statistics of Income: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

March 18, 2013: 

The Honorable John Lewis: 
Ranking Member: 
Subcommittee on Oversight: 
Committee on Ways and Means: 
House of Representatives: 

The Honorable Lloyd Doggett: 
House of Representatives: 

Each year, the federal government makes a significant commitment to 
corporate income tax expenditures, which are reductions in the federal 
corporate income tax liability that result from special exemptions and 
exclusions from taxation, deductions, credits, deferrals of tax 
liability, or preferential tax rates. Estimated corporate revenue 
losses represent the amount of revenue the federal government forgoes 
as a result of corporate tax expenditures. Tax expenditures play a 
central role in a number of Congress's and the administration's 
proposals for corporate tax reform. Discussion regarding corporate tax 
reform has involved modifying or repealing certain tax expenditures as 
a way to broaden the corporate tax base and using the resulting 
revenue gains to offset reduced revenue from lowering the corporate 
income tax rate. However, there is little agreement on how much 
corporate tax rates should be reduced; which tax expenditures should 
be repealed or modified to offset such a rate cut; and what, if any, 
changes would be made to the individual income tax system to account 
for other types of business organizations and individual taxpayers 
that claim the same tax expenditures as corporations. 

Corporate tax expenditures cover a wide range of federal policy goals 
and may have one or more purposes that are also pursued by federal 
spending programs. As we recently reported, reassessments of tax 
expenditures benefit from understanding whether there are related 
spending programs.[Footnote 1] 

You requested that we provide information describing corporate tax 
expenditures. Specifically, this report: (1) describes trends in the 
number of corporate tax expenditures and aggregate corporate revenue 
losses since 1986; (2) describes the use of corporate tax expenditures 
in 2011; and (3) compares the size of corporate tax expenditures to 
federal spending by budget function and, for tax expenditures used 
only by corporations, identifies spending programs with similar 
purposes.[Footnote 2] 

To identify how corporate tax expenditures have changed in terms of 
their numbers and aggregate revenue loss, we analyzed Department of 
the Treasury (Treasury) estimates for fiscal years 1986 through 2011. 
We aggregated estimated corporate and individual revenue losses and 
also identified the number of tax expenditures with only estimated 
corporate revenue losses, those with both corporate and individual 
revenue losses, and those with only individual revenue losses. 
[Footnote 3] 

To describe the use of corporate tax expenditures, including the 
number of taxpayers claiming corporate-only tax expenditures, we 
analyzed Treasury revenue loss estimates for 2011 for corporate and 
individual taxpayer groups.[Footnote 4] We defined corporate tax 
expenditures as those that Treasury reported had estimated revenue 
losses for corporations in 2011; we describe any tax expenditures that 
Treasury estimated lost only corporate tax revenue in 2011 as 
corporate-only tax expenditures. We also obtained, where available, 
estimates from the Internal Revenue Service (IRS) Statistics of Income 
(SOI) 2010 corporate sample on the number of corporate taxpayers 
claiming certain tax expenditures. These were the most recent 
estimates available at the time of our work. Similarly, we obtained 
publicly available fiscal year 2010 data from IRS's Tax Exempt and 
Government Entities division on certain corporate tax expenditures. To 
assess the reliability of the data and estimates, we reviewed agency 
documentation, interviewed agency officials, and reviewed our prior 
reports that have used the data and estimates. While we determined 
that the Treasury and IRS data and estimates were sufficiently 
reliable for our purposes, the IRS SOI corporate sample may not 
provide a precise estimate of the number of taxpayers claiming a tax 
expenditure when the number of taxpayers is very small.[Footnote 5] 

To compare corporate tax expenditures to federal spending by budget 
function, we summed the estimated revenue losses of corporate tax 
expenditures and compared them to federal outlays by budget function 
for 2011. To identify spending programs with reported purposes similar 
to corporate-only tax expenditures in 2011, we first identified the 
reported purpose of those tax expenditures by reviewing their 
legislative histories, our prior work, as well as work by the 
Congressional Research Service (CRS) and the Congressional Budget 
Office (CBO) that discussed the tax expenditures. We reviewed these 
sources for any discussion on the intent or rationale of the tax 
expenditures. For this report, we identified a narrow reported 
purpose, specific to the type of entity or activity that the corporate-
only tax expenditures support or target. In identifying the narrow 
reported purposes we were not trying to discern the legislative 
intent. The corporate-only tax expenditures may have broader or 
additional purposes beyond the narrow reported purposes we identified. 
We used the narrow reported purposes as they allowed us to identify 
the tax and nontax programs that appear to most closely support the 
activity or entity the corporate-only tax expenditures support. We 
then searched the 2012 Catalog of Federal Domestic Assistance (CFDA) 
to identify federal spending programs that appear to share a similar 
reported purpose based on the CFDA's program descriptions. Our list of 
nontax programs that appear to share a similar reported purpose has 
not been reviewed by the agencies responsible for them. We identified 
tax expenditures that appear to share a similar reported purpose by 
reviewing their descriptions in the fiscal year 2013 Analytical 
Perspectives, supplemented with the description in CRS's 2010 tax 
expenditures compendium, and Treasury and IRS reviewed our 
identification of related tax expenditures.[Footnote 6] See appendix I 
for more information on our scope and methodology. 

We conducted our work from October 2012 to March 2013 in accordance 
with all sections of GAO's Quality Assurance Framework that are 
relevant to our objectives. The framework requires that we plan and 
perform the engagement to obtain sufficient and appropriate evidence 
to meet our stated objectives and to discuss any limitations in our 
work. We believe that the information and data obtained, and the 
analysis conducted, provide a reasonable basis for any findings and 
conclusions in this product. 

Background: 

Corporate tax expenditures are special tax provisions that are 
exceptions to the normal structure of the corporate income tax 
system.[Footnote 7] They represent revenue the federal government 
forgoes from these tax provisions. The Congressional Budget and 
Impoundment Control Act of 1974 identified six types of tax provisions 
that are considered tax expenditures when they are exceptions to the 
normal tax structure, including exemptions, exclusions, deductions, 
credits, deferral, and preferential tax rates.[Footnote 8] Treasury 
and the Joint Committee on Taxation each compile an annual list of tax 
expenditures by budget function with estimates of the corporate and 
individual income tax revenue losses for each tax expenditure in their 
respective lists.[Footnote 9] Treasury and the Joint Committee on 
Taxation calculate separately the estimated revenue losses for each 
tax expenditure under the assumptions that all other tax expenditures 
remain in the tax code and taxpayer behavior remains constant. 
[Footnote 10] Thus, the estimated revenue losses do not represent the 
amount of revenue that would be gained if a particular tax expenditure 
was repealed, since repeal would probably change taxpayer behavior in 
some way that would affect revenue. 

Corporate income tax expenditures are estimated for firms organized 
under the tax code as C corporations, which include most large, 
publicly held corporations, and have their profits taxed at the entity 
level under the corporate income tax system (filed on an IRS form 
1120). Other types of businesses, such as partnerships and S 
corporations[Footnote 11], are referred to as "pass-through" entities 
because for tax purposes the income earned by these businesses is 
attributed to or passed through to the owners of the business and are 
in general taxed only once under the individual income tax system. 
Treasury and the Joint Committee on Taxation classify the estimated 
amounts of tax expenditures claimed (or used) by "pass-through" 
entities as individual income tax expenditures.[Footnote 12] 

The classification of a tax expenditure as corporate or individual, or 
both is based on the entity that claims or uses the particular tax 
provision or would report a type of income if it were not excluded 
from tax. This classification reflects what is referred to as the 
statutory incidence of the tax expenditure and shows which entities--
corporations or individuals, or both--can directly reduce their tax 
liability because of the tax expenditure. However, as both Treasury 
and the Joint Committee on Taxation note, the benefits and outcomes 
from the tax expenditure may be intended to ultimately benefit people 
other than the direct recipients of the tax expenditure. To the extent 
that a tax expenditure leads to changes in the prices of particular 
goods or services, wages, or returns on investment, consumers, 
employees, or shareholders may see benefits that they otherwise would 
not have received. A classification based on ultimate beneficiaries 
would reflect what is known about the economic incidence of tax 
expenditures rather than the statutory incidence.[Footnote 13] For 
example, the credit for low-income housing investments, while claimed 
largely by corporate taxpayers, is intended to ultimately benefit 
individuals by stimulating the production of affordable rental housing 
and thereby enabling low-income households to obtain potentially 
higher quality housing for lower rent than they would have otherwise. 

Over the past decade, the number of corporate taxpayers has declined, 
partly because more businesses are organizing as "pass-through" 
entities than as C corporations. In tax year 2010, IRS reported that 
almost 1.7 million active C corporations filed an IRS form 1120, down 
from 1.9 million in tax year 2007 and 2.2 million in tax year 2000. 
[Footnote 14] Measured relative to the economy as a share of gross 
domestic product (GDP), corporate income tax receipts increased in the 
years leading up to the economic recession that began in December 
2007. During this period they increased from 2.1 percent of GDP in 
2000 to 2.7 percent of GDP in 2007 and have since decreased to 1.2 
percent of GDP in 2011.[Footnote 15] 

Both members of Congress and the administration have outlined 
potential frameworks and proposals for modifying and simplifying the 
corporate income tax system in recent years. A number of these 
proposals have involved modifying or repealing some corporate tax 
expenditures to broaden the corporate income tax base and using the 
resulting revenue offset to reduce corporate income tax rates. One 
notable challenge for broader corporate tax reform is the degree to 
which changes to tax expenditures affect other types of taxpayers 
claiming them as most corporate tax expenditures are also available to 
other types of business entities other than corporations. 

In selecting activities to fund federal policy goals, Congress can 
choose to enact a tax expenditure rather than a spending program or 
vice versa for a variety of reasons. We have developed and highlighted 
criteria and questions for evaluating tax expenditures, including 
whether other policy tools, such as spending programs, are preferable 
to tax expenditures.[Footnote 16] In addition, we have long reported 
that, once enacted, tax expenditures and their relative contributions 
toward achieving federal missions and goals are often less visible 
than spending programs, which are subject to a more systematic review 
of performance, including results.[Footnote 17] More recently, the 
Government Performance and Results Act (GPRA) Modernization Act of 
2010 (GPRAMA)[Footnote 18] established a framework for providing a 
more crosscutting and integrated approach to focusing on results and 
improving government performance, including for tax expenditures. 
GPRAMA makes clear that the Office of Management and Budget, in 
coordination with federal agencies, is to identify, among other 
things, the various federal agencies, program activities, and tax 
expenditures that contribute to the federal government's performance 
plan that defines the level of performance to be achieved toward 
crosscutting priority goals. These crosscutting priority goals cover a 
limited number of policy areas as well as goals to improve management 
across the federal government. Moving forward, GPRAMA implementation 
can help inform tough choices in setting priorities as policymakers 
address the rapidly building fiscal pressures facing our national 
government.[Footnote 19] 

Estimated Revenue Losses from Corporate Tax Expenditures and the 
Number of Corporate Tax Expenditures Have Increased Since 1986: 

Estimated revenue losses from corporate tax expenditures have 
increased over the last few decades in constant dollars, as shown in 
figure 1. After decreasing in the years following the Tax Reform Act 
of 1986, due to changes to both tax rates and tax expenditures, 
corporate revenue losses increased thereafter. Individual revenue 
losses also increased, although at a faster pace than corporate 
revenue losses. 

Figure 1: Comparison of Estimated Federal Tax Revenue Loss Due to Tax 
Expenditures for Corporations and Individuals Reported by Treasury, 
1986 through 2011: 

[Refer to PDF for image: stacked line graph] 

Amounts are in constant 2011 dollars. 

Fiscal year: 1986; 
Corporations: $134.2 billion; 
Individuals: $574.3 billion. 

Fiscal year: 1987; 
Corporations: $84.4 billion; 
Individuals: $575.8 billion. 

Fiscal year: 1988; 
Corporations: $83.1 billion; 
Individuals: $429.3 billion. 

Fiscal year: 1989; 
Corporations: $103.3 billion; 
Individuals: $439.3 billion. 

Fiscal year: 1990; 
Corporations: $91.4 billion; 
Individuals: $457.8 billion. 

Fiscal year: 1991; 
Corporations: $70.7 billion; 
Individuals: $469.0 billion. 

Fiscal year: 1992; 
Corporations: $67.9 billion; 
Individuals: $489.8 billion. 

Fiscal year: 1993; 
Corporations: $71.4 billion; 
Individuals: $494.4 billion. 

Fiscal year: 1994; 
Corporations: $78.1 billion; 
Individuals: $516.9 billion. 

Fiscal year: 1995; 
Corporations: $87.0 billion; 
Individuals: $529.2 billion. 

Fiscal year: 1996; 
Corporations: $77.8 billion; 
Individuals: $541.6 billion. 

Fiscal year: 1997; 
Corporations: $74.6 billion; 
Individuals: $571.6 billion. 

Fiscal year: 1998; 
Corporations: $87.7 billion; 
Individuals: $643.1 billion. 

Fiscal year: 1999; 
Corporations: $83.4 billion; 
Individuals: $702.7 billion. 

Fiscal year: 2000; 
Corporations: $95.6 billion; 
Individuals: $726.8 billion. 

Fiscal year: 2001; 
Corporations: $101.9 billion; 
Individuals: $789.9 billion. 

Fiscal year: 2002; 
Corporations: $112.5 billion; 
Individuals: $813.5 billion. 

Fiscal year: 2003; 
Corporations: $102.4 billion; 
Individuals: $785.4 billion. 

Fiscal year: 2004; 
Corporations: $94.1 billion; 
Individuals: $760.9 billion. 

Fiscal year: 2005; 
Corporations: $91.0 billion; 
Individuals: $791.1 billion. 

Fiscal year: 2006; 
Corporations: $107.0 billion; 
Individuals: $824.2 billion. 

Fiscal year: 2007; 
Corporations: $97.3 billion; 
Individuals: $804.5 billion. 

Fiscal year: 2008; 
Corporations: $130.4 billion; 
Individuals: $786.1 billion. 

Fiscal year: 2009; 
Corporations: $108.8 billion; 
Individuals: $900.6 billion. 

Fiscal year: 2010; 
Corporations: $116.4 billion; 
Individuals: $928.5 billion. 

Fiscal year: 2011; 
Corporations: $181.4 billion; 
Individuals: $891.0 billion. 

Source: GAO analysis of Office of Management and Budget reports, 
fiscal years 1988-2013. 

Note: Sum of estimated revenue losses does not include outlay effects 
or reductions in excise tax receipts. 

[End of figure] 

From 1986 through 2011, the number of tax expenditures with estimated 
corporate revenue losses increased from 61 in 1986 to 80 in 2011, as 
shown in figure 2.[Footnote 20] 

Figure 2: Number of Corporate Tax Expenditures Reported by Treasury, 
1986 through 2011: 

[Refer to PDF for image: multiple line graph] 

Fiscal year: 1986; 
Number of Tax Expenditures Reported only as corporate: 16; 
Number of Tax Expenditures Reported as both corporate and individual: 
45; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 61. 

Fiscal year: 1987; 
Number of Tax Expenditures Reported only as corporate: 22; 
Number of Tax Expenditures Reported as both corporate and individual: 
35; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 57. 

Fiscal year: 1988; 
Number of Tax Expenditures Reported only as corporate: 28; 
Number of Tax Expenditures Reported as both corporate and individual: 
38; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 66. 

Fiscal year: 1989; 
Number of Tax Expenditures Reported only as corporate: 30; 
Number of Tax Expenditures Reported as both corporate and individual: 
31; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 61. 

Fiscal year: 1990; 
Number of Tax Expenditures Reported only as corporate: 30; 
Number of Tax Expenditures Reported as both corporate and individual: 
31; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 61. 

Fiscal year: 1991; 
Number of Tax Expenditures Reported only as corporate: 25; 
Number of Tax Expenditures Reported as both corporate and individual: 
30; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 55. 

Fiscal year: 1992; 
Number of Tax Expenditures Reported only as corporate: 21; 
Number of Tax Expenditures Reported as both corporate and individual: 
40; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 61. 

Fiscal year: 1993; 
Number of Tax Expenditures Reported only as corporate: 18; 
Number of Tax Expenditures Reported as both corporate and individual: 
45; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 63. 

Fiscal year: 1994; 
Number of Tax Expenditures Reported only as corporate: 18; 
Number of Tax Expenditures Reported as both corporate and individual: 
46; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 64. 

Fiscal year: 1995; 
Number of Tax Expenditures Reported only as corporate: 19; 
Number of Tax Expenditures Reported as both corporate and individual: 
44; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 63. 

Fiscal year: 1996; 
Number of Tax Expenditures Reported only as corporate: 16; 
Number of Tax Expenditures Reported as both corporate and individual: 
45; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 61. 

Fiscal year: 1997; 
Number of Tax Expenditures Reported only as corporate: 17; 
Number of Tax Expenditures Reported as both corporate and individual: 
44; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 61. 

Fiscal year: 1998; 
Number of Tax Expenditures Reported only as corporate: 19; 
Number of Tax Expenditures Reported as both corporate and individual: 
41; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 60. 

Fiscal year: 1999; 
Number of Tax Expenditures Reported only as corporate: 18; 
Number of Tax Expenditures Reported as both corporate and individual: 
43; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 61. 

Fiscal year: 2000; 
Number of Tax Expenditures Reported only as corporate: 19; 
Number of Tax Expenditures Reported as both corporate and individual: 
40; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 59. 

Fiscal year: 2001; 
Number of Tax Expenditures Reported only as corporate: 19; 
Number of Tax Expenditures Reported as both corporate and individual: 
40; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 59. 

Fiscal year: 2002; 
Number of Tax Expenditures Reported only as corporate: 17; 
Number of Tax Expenditures Reported as both corporate and individual: 
41; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 58. 

Fiscal year: 2003; 
Number of Tax Expenditures Reported only as corporate: 19; 
Number of Tax Expenditures Reported as both corporate and individual: 
40; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 59. 

Fiscal year: 2004; 
Number of Tax Expenditures Reported only as corporate: 22; 
Number of Tax Expenditures Reported as both corporate and individual: 
43; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 65. 

Fiscal year: 2005; 
Number of Tax Expenditures Reported only as corporate: 27; 
Number of Tax Expenditures Reported as both corporate and individual: 
52; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 79. 

Fiscal year: 2006; 
Number of Tax Expenditures Reported only as corporate: 27; 
Number of Tax Expenditures Reported as both corporate and individual: 
48; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 75. 

Fiscal year: 2007; 
Number of Tax Expenditures Reported only as corporate: 26; 
Number of Tax Expenditures Reported as both corporate and individual: 
51; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 77. 

Fiscal year: 2008; 
Number of Tax Expenditures Reported only as corporate: 23; 
Number of Tax Expenditures Reported as both corporate and individual: 
51; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 74. 

Fiscal year: 2009; 
Number of Tax Expenditures Reported only as corporate: 23; 
Number of Tax Expenditures Reported as both corporate and individual: 
54; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 77. 

Fiscal year: 2010; 
Number of Tax Expenditures Reported only as corporate: 24; 
Number of Tax Expenditures Reported as both corporate and individual: 
56; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 80. 

Fiscal year: 2011; 
Number of Tax Expenditures Reported only as corporate: 24; 
Number of Tax Expenditures Reported as both corporate and individual: 
56; 
Sum of the number of tax expenditures reported as corporate (those 
reported only as corporate and those reported as both corporate and 
individual): 80. 

Source: GAO analysis of Office of Management and Budget reports, 
fiscal years 1986-2013. 

Note: Tax expenditures may be available to corporate and individual 
taxpayers, including other types of business entities other than 
corporations. According to Treasury's estimates, some tax expenditures 
may be used by only corporate taxpayers and some by only individual 
taxpayers while other tax expenditures may be used by both corporate 
and individual taxpayers. 

[End of figure] 

More Than Two-Thirds of Corporate Tax Expenditures Are Also Used by 
Individuals: 

Estimated corporate revenue losses in 2011, which totaled $181.4 
billion, were approximately the same size as the amount of corporate 
income tax revenue the federal government collected that year. 
Individual tax revenue losses totaled $891 billion in 2011, and 
included tax expenditures used by other types of business entities 
that pass through to individual taxpayers. According to Treasury's 
2011 estimates, 80 tax expenditures had corporate revenue losses. Of 
those, two expenditures accounted for 65 percent of all estimated 
corporate revenues losses in 2011 while another five tax expenditures--
each with at least $5 billion or more in estimated revenue loss for 
2011--accounted for an additional 21 percent of corporate revenue loss 
estimates. Table 1 shows the seven largest corporate tax expenditures 
in 2011. 

Table 1: Seven Largest Corporate Tax Expenditures, 2011: 

Tax expenditure: Accelerated depreciation of machinery and 
equipment[A]; 
Federal revenue loss estimates resulting from corporations: $76.1 
billion; 
Share of total estimated corporate tax revenue losses: 42%. 

Tax expenditure: Deferral of income from controlled foreign 
corporations; 
Federal revenue loss estimates resulting from corporations: $41.4 
billion; 
Share of total estimated corporate tax revenue losses: 23%. 

Tax expenditure: Deduction for US production activities[B]; 
Federal revenue loss estimates resulting from corporations: $9.8 
billion; 
Share of total estimated corporate tax revenue losses: 5%. 

Tax expenditure: Credit for increasing research activities[C]; 
Federal revenue loss estimates resulting from corporations: $8.3 
billion; 
Share of total estimated corporate tax revenue losses: 5%. 

Tax expenditure: Exclusion of interest on public purpose State and 
local bonds[D]; 
Federal revenue loss estimates resulting from corporations: $7.6 
billion; 
Share of total estimated corporate tax revenue losses: 4%. 

Tax expenditure: Deferred taxes for financial firms on certain income 
earned overseas; 
Federal revenue loss estimates resulting from corporations: $6.2 
billion; 
Share of total estimated corporate tax revenue losses: 3%. 

Tax expenditure: Credit for low-income housing investments[E]; 
Federal revenue loss estimates resulting from corporations: $5.8 
billion; 
Share of total estimated corporate tax revenue losses: 3%. 

Tax expenditure: Total; 
Federal revenue loss estimates resulting from corporations: $155.3 
billion; 
Share of total estimated corporate tax revenue losses: 86%. 

Source: GAO analysis of Office of Management and Budget budget data on 
tax expenditures, fiscal year 2013. 

Note: Totals may not add due to rounding. 

[A] Also had estimated individual revenue losses of $42.4 billion in 
2011. 

[B] Also had estimated individual revenue losses of about $3.3 billion 
in 2011. 

[C] Also had estimated individual revenue losses of $460 million in 
2011. 

[D] Also had estimated individual revenue losses of about $18.6 
billion in 2011. 

[E] Also had estimated individual revenue losses of $310 million in 
2011. In addition, the credit for low-income housing investments has 
outlay effects of nearly $3.5 billion in 2011. 

[End of table] 

A majority of corporate tax expenditures are not isolated to the 
corporate income tax system but also apply to other types of 
businesses, including "pass-through" entities. Of the 80 tax 
expenditures used by corporations, 56 were also used by individuals, 
as shown in figure 3. Modifying any of these 56 tax expenditures as 
part of broader corporate tax reform would likely affect both 
corporate and individual taxpayers to some degree. However, the 
percentage of corporate taxpayers using these tax expenditures varies 
considerably across the 56 tax expenditures. For example, some tax 
expenditures are predominately used by corporations, such as the 
alcohol fuels credit, with estimated corporate revenue losses 
comprising 96 percent of the tax expenditure's estimated $500 million 
income tax revenue loss in 2011.[Footnote 21] Others are used 
predominantly by individuals, such as the exclusion of utility 
conservation subsidies, where corporations account for less than 5 
percent of the $220 million estimated revenue loss in 2011. See 
appendix II for more information on these 56 tax expenditures' 
estimated corporate revenue losses in 2011. 

Figure 3: Estimated Federal Tax Revenue Losses Resulting from 
Corporate Tax Expenditures, 2011: 

[Refer to PDF for image: stacked horizontal bar graph] 

56 tax expenditures used by corporations and individuals resulting in 
estimated federal revenue losses: 
Estimated revenue losses resulting from individual use of tax 
expenditures: $122.4 billion; 
Estimated revenue losses resulting from corporate use of tax 
expenditures: $125.0 billion; 
Total Estimated Federal Tax Revenue Losses for Corporate Tax 
Expenditures: $247.4 billion. 

24 tax expenditures used only by corporations resulting in estimated 
federal revenue losses: 
Estimated revenue losses resulting from corporate use of tax 
expenditures: $58.9 billion; 
Total Estimated Federal Tax Revenue Losses for Corporate Tax 
Expenditures: $58.9 billion. 

Source: GAO analysis of Office of Management and Budget budget data on 
tax expenditures, fiscal year 2013. 

Note: Sum of estimated revenue losses does not include outlay effects 
or reductions in excise tax receipts. Tax expenditures may be 
available to corporate and individual taxpayers, including other types 
of business entities other than corporations. According to the 
Department of the Treasury’s estimates, some tax expenditures may be 
used by only corporate taxpayers and some by only individual taxpayers 
while other tax expenditures may be used by both corporate and 
individual taxpayers. 

[End of figure] 

The remaining 24 tax expenditures had only estimated corporate revenue 
losses in 2011. Some tax expenditures are limited to C corporations 
based on requirements in the Internal Revenue Code, which is why they 
have only corporate revenue losses, while others may not be restricted 
to C corporations but are only used by corporations in 
practice.[Footnote 22] Modifying only those tax expenditures used by 
corporations as part of corporate tax reform may limit the changes to 
tax expenditures claimed only by corporate taxpayers but would limit 
somewhat the degree to which the corporate tax base could be broadened 
to pay for a corporate tax rate cut. See appendix III for a list of 
corporate-only tax expenditures. The number of corporations claiming a 
particular corporate-only tax expenditure varies. For example, in 2010 
almost 12,000 organizations claimed the tax exemption for certain 
insurance companies owned by tax-exempt organizations ($200 million in 
corporate tax revenue losses in 2011) while 5 corporations claimed the 
credit for energy efficient appliances ($280 million in corporate tax 
revenue losses in 2011).[Footnote 23] See appendix IV for the numbers 
of users for 11 corporate-only tax expenditures where data were 
available. 

Corporate Tax Expenditures Span Many Budget Functions; One-Third of 
Corporate-Only Tax Expenditures Share a Similar Purpose with Federal 
Spending Programs: 

Corporate Tax Expenditures Span Many Budget Functions, and Estimated 
Corporate Revenue Losses Are Concentrated in Two Budget Functions: 

Corporate tax expenditures span a majority of federal mission areas, 
but their relative size differs across budget functions. The 80 
corporate tax expenditures had estimated revenue losses in 12 of the 
18 budget functions in 2011, as shown in table 2. Of the $181 billion 
in estimated corporate tax revenue losses, 81 percent was concentrated 
in the international affairs and housing and commerce budget 
functions. In these two budget functions, estimated corporate revenue 
losses were more than federal outlays. 

Table 2: Numbers and Estimated Federal Revenue Losses Resulting from 
Corporate Tax Expenditures by Budget Function, 2011: 

Budget function: Commerce and housing; 
Number of corporate tax expenditures: 16; 
Estimated corporate tax revenue losses[A]: $96.3 billion; 
Federal outlays: $(12.6) billion[B]. 

Budget function: International affairs; 
Number of corporate tax expenditures: 3; 
Estimated corporate tax revenue losses[A]: $50.8 billion; 
Federal outlays: $45.7 billion. 

Budget function: General science, space, and technology; 
Number of corporate tax expenditures: 2; 
Estimated corporate tax revenue losses[A]: $9.3 billion; 
Federal outlays: $29.5 billion. 

Budget function: General purpose fiscal assistance; 
Number of corporate tax expenditures: 1; 
Estimated corporate tax revenue losses[A]: $7.6 billion; 
Federal outlays: $7.5 billion. 

Budget function: Energy; 
Number of corporate tax expenditures: 20; 
Estimated corporate tax revenue losses[A]: $6.1 billion; 
Federal outlays: $12.2 billion. 

Budget function: Education, training, employment, and social services; 
Number of corporate tax expenditures: 10; 
Estimated corporate tax revenue losses[A]: $4.0 billion; 
Federal outlays: $101.2 billion. 

Budget function: Health; 
Number of corporate tax expenditures: 5; 
Estimated corporate tax revenue losses[A]: $2.8 billion; 
Federal outlays: $372.5 billion. 

Budget function: Community and regional development; 
Number of corporate tax expenditures: 8; 
Estimated corporate tax revenue losses[A]: $1.8 billion; 
Federal outlays: $23.8 billion. 

Budget function: Natural resources and environment; 
Number of corporate tax expenditures: 8; 
Estimated corporate tax revenue losses[A]: $1.5 billion; 
Federal outlays: $45.5 billion. 

Budget function: Income security; 
Number of corporate tax expenditures: 1; 
Estimated corporate tax revenue losses[A]: $1.0 billion; 
Federal outlays: $597.4 billion. 

Budget function: Transportation; 
Number of corporate tax expenditures: 3; 
Estimated corporate tax revenue losses[A]: $0.2 billion; 
Federal outlays: $93.0 billion. 

Budget function: Agriculture; 
Number of corporate tax expenditures: 3; 
Estimated corporate tax revenue losses[A]: $0.04 billion; 
Federal outlays: $20.7 billion. 

Budget function: Total; 
Number of corporate tax expenditures: 80; 
Estimated corporate tax revenue losses[A]: $181.4 billion[C]; 
Federal outlays: $1.336 trillion. 

Source: GAO analysis of Office of Management and Budget budget data on 
tax expenditures and federal outlays, fiscal year 2013. 

Notes: Budget functions are sorted by estimated corporate revenue 
losses. The national defense, social security, veterans benefits and 
services, and net interest budget functions had no corporate tax 
expenditures. While Treasury classifies each of the tax expenditures 
it lists under a particular budget function, some tax expenditures, 
such as those in the commerce and housing budget function may be 
claimed by various industries and potentially cut across multiple 
budget functions. 

[A] The sum of estimated revenue losses does not include outlay 
effects or reductions in excise tax receipts. Outlay-equivalent 
estimates--the amount of outlays required to deliver the same after-
tax income as provided through the tax expenditure--may provide for a 
more appropriate comparison to federal spending than estimated revenue 
losses if particular outlays represent taxable income to the 
recipient. However, Treasury no longer estimates outlay equivalent 
values for tax expenditures and therefore estimated revenue losses 
were used instead. 

[B] The outlays are negative for this budget function as the present 
value of expected government collections for loan guarantee programs 
exceeds the present value of expected payments over the course of the 
loan guarantee in this particular year. 

[C] Fifty six of the 80 corporate tax expenditures also had individual 
revenue losses from individual taxpayers and other business entities 
using these tax expenditures totaling $125 billion in 2011. 

[End of table] 

Corporate-Only Tax Expenditures Support Certain Activities or Entities 
and May Seek to Contribute to Broader National Results: 

Corporate-only tax expenditures generally support or encourage a 
specific type of entity or activity. See appendix V for the reported 
purposes for the 24 corporate-only tax expenditures that were the 
basis for our identification of related federal activities. Some of 
these tax expenditures have multiple reported purposes that are 
broader and in pursuit of national priorities. For example, seven 
corporate-only tax expenditures are aimed at encouraging or supporting 
the production of specific energy sources or the development of 
technology or infrastructure for certain energy sectors. These tax 
expenditures also have broader purposes such as promoting domestic 
energy production and energy security. 

Other corporate-only tax expenditures provide support for certain 
types of entities, such as insurance companies or credit unions. 
Beyond providing support for these entities, these corporate-only tax 
expenditures may have additional purposes, which are different or 
broader in scope, related to why these types of entities receive tax 
support. However some of these tax expenditures were granted to 
entities prior to World War II and the rationale for continuing 
support to these entities may have changed over time, making it 
difficult to determine the purpose of providing the support. Our 
previous work highlighted the changing historical basis for one of 
these tax expenditures--the tax exemption of credit union income--as 
shown in figure 4. 

Figure 4: Historical Basis for the Tax Exemption of Credit Union 
Income: 

[Refer to PDF for image: document excerpt] 

Unlike other depository institutions, credit unions are exempt form 
federal corporate income taxes. Congress originally granted tax[exempt 
status to credit unions in 1937 because of their similarity to other 
mutually owned financial institutions that were tax[exempt at that 
time. While other institutions lost their exemption in the Revenue Act 
of 1951, credit unions specifically remained exempted. The act's 
legislative history is silent regarding why the tax-exempt status of 
credit unions was not revoked. More recently, the Credit Union 
Membership Access Act of 1998 indicates that credit unions continue to 
be exempt because of their cooperative, not-for-profit structure, 
which is distinct form other depository institutions, and because 
credit unions historically have emphasized serving people of modest 
means. 

Source: GAO, Financial Institutions: Issues Regarding the Tax-Exempt 
Status of Credit Unions, [hyperlink, 
http://www.gao.gov/products/GAO-06-220T] (Washington, DC, November 3, 
2005). 

[End of figure] 

One-Third of the Tax Expenditures Used Only by Corporations Appear to 
Share a Similar Purpose with Federal Spending Programs: 

Of the 24 corporate-only tax expenditures, one-third appear to share a 
similar purpose with federal spending programs. The largest number of 
these tax expenditures support purposes related to energy-and natural 
resources and environment-related purposes. These tax expenditures can 
be broken into two groups: (1) those aimed at encouraging fossil fuel 
production and development, and (2) those that are intended to 
encourage technology development, renewable energy, or energy 
efficiency. We identified related spending programs that appear to 
share a similar reported purpose with tax expenditures for the second 
category, but none for the first. See appendix VI for a summary list 
of related federal spending programs and activities. 

While we identified related federal spending programs based on 
reported purposes specific to the entity or activity being supported, 
a number of these tax expenditures may also have one or more reported 
purposes that pursue broader or different aims. If a broader reported 
purpose was used, the extent of related spending programs identified 
may change considerably. For example, the bio-diesel and small agri-
biodiesel producer tax credits, one of the corporate-only tax 
expenditures in 2011, have a specific reported purpose of encouraging 
production of biodiesel fuels, and we identified three federal 
spending programs that appear to share a similar purpose. Using a 
broader purpose for this tax expenditure would likely increase the 
number of federal spending programs identified that have a similar 
purpose. For example, our prior work on renewable energy identified 
nearly 700 federal initiatives related to renewable energy, including 
the bio-diesel and small agri-biodiesel producer tax credits. 
[Footnote 24] Applying an even broader national purpose, such as 
encouraging domestic energy production, could further increase the 
number of federal spending programs, as well as other federal 
activities, such as federal regulations and tax expenditures, which 
may share a similar purpose. Alternatively, applying a different 
purpose, such as supporting rural and farm areas, could lead to 
identifying different federal programs that may share a similar 
purpose. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Secretary of the Treasury 
and the Acting Commissioner of Internal Revenue for comment. Treasury 
provided technical comments which we incorporated; IRS had no comments 
on the report. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to interested 
congressional committees, the Secretary of the Treasury, the Acting 
Commissioner of Internal Revenue, and other interested parties. In 
addition, the report will be available at no charge on the GAO website 
at [hyperlink, http://www.gao.gov]. 

If you have any questions on this report, please contact me at (202) 
512-9110 or whitej@gao.gov. Contact points for our offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. Key contributors to this report are listed in 
appendix VII. 

Signed by: 

James R. White: 
Director, Tax Issues: 
Strategic Issues: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This report: (1) describes trends in the number of corporate tax 
expenditures and aggregate corporate revenue losses since 1986; (2) 
describes the use of corporate tax expenditures in 2011; and (3) 
compares the size of corporate tax expenditures to federal spending by 
budget function and, for tax expenditures used only by corporations, 
identifies spending programs with similar purposes. 

Trend Analysis of Treasury Tax Expenditure Estimates: 

To identify how corporate tax expenditures have changed in terms of 
their numbers and aggregate estimated revenue losses, we analyzed tax 
expenditure estimates developed by the Department of the Treasury 
(Treasury) and reported by the Office of Management and Budget in the 
Federal Budget's Analytical Perspectives for fiscal years 1986 through 
2011. For this period, we determined which tax expenditures had 
estimates only for corporations, for both corporations and 
individuals, and only for individuals.[Footnote 25] We then summed the 
estimated revenue losses and the number of tax expenditures by 
taxpayer group to determine changes over time in trend data and to see 
how the amounts differed between these taxpayer groups.[Footnote 26] 
We converted all sums for each fiscal year into 2011 constant dollars 
to adjust for inflation using the chain price indexes reported in the 
fiscal year 2013 federal budget. While sufficiently reliable as a 
gauge of general magnitude, summing revenue loss estimates does not 
take into account any interactions between tax expenditures. In 
addition, revenue loss estimates do not incorporate any behavioral 
responses and, thus, do not represent the revenue amount that would be 
gained if a specific tax expenditure was repealed.[Footnote 27] 

Fiscal Year 2011 Analysis of Treasury Tax Expenditure Estimates and 
Internal Revenue Service Data on Number of Recipients: 

For 2011, we analyzed those tax expenditures with only estimated 
corporate revenue losses and those with both corporate and individual 
revenue losses.[Footnote 28] For this study, we defined corporate tax 
expenditures as those that Treasury reported had estimated revenue 
losses for corporations in 2011; we describe any tax expenditures that 
Treasury estimated lost only corporate tax revenue as corporate-only 
tax expenditures. We did not conduct a legal analysis to determine 
which tax expenditures are available only to corporations. 

To describe the number of taxpayers claiming corporate-only tax 
expenditures, we obtained estimates, where available, from the 
Internal Revenue Service (IRS) Statistics of Income (SOI) 2010 
corporate sample on the number of corporate taxpayers claiming each of 
the corporate-only tax expenditures. These were the most recent 
estimates available at the time of our work. Data compiled by IRS SOI 
is based on a stratified, random sample of 63,630 corporate income tax 
returns for 2010 from corporations that end their corporate year from 
July 1, 2010, through June 30, 2011. These estimates are subject to 
sampling errors. Based on the number of sampled returns and the 
coefficients of variation provided by SOI, we estimate that the upper 
bound of a 95 percent confidence interval for the estimated total 
number is less than 830 corporations for the following tax 
expenditures: alternative fuel production credit, bio-diesel and small 
agri-biodiesel producer tax credits, credit for energy efficient 
appliances, employer-provided child care credit, tax credit for orphan 
drug research, small life insurance company deduction, and Special 
Blue Cross/Blue Shield deduction. For our report, IRS SOI provided 
data on C corporations, and we excluded S corporations that pass 
through to individual taxpayers. C corporations include active 
corporations filing tax forms 1120, 1120-F, 1120-L, and 1120-PC but 
not tax forms 1120S, 1120-REIT, and 1120-RIC. Overall, IRS SOI was 
able to provide estimates for nine tax credits or deductions because 
these tax expenditures were reported on an isolated line of an IRS 
form. However, for two of those tax credits, the requirement to 
protect taxpayer information forced IRS to exclude estimates of the 
number of tax recipients of those credits.[Footnote 29] 

We also obtained publicly available fiscal year 2010 data from IRS's 
Tax Exempt and Government Entities division on four corporate-only tax 
expenditures. These corporate-only tax expenditures were tax 
exemptions and included the exemption of credit union income, tax 
exemption of certain insurance companies owned by tax-exempt 
organizations, exemption of certain mutuals' and cooperatives' income, 
and special alternative tax on small property and casualty insurance 
companies. For three of the four tax expenditures that we obtained 
publicly available data on the number of organizations claiming the 
tax exemption, the data represented only a portion of organizations to 
which the exemption applies as reporting requirements differ within 
each of these tax expenditures. From these two sources, IRS SOI 
estimates and publicly available data from IRS's Tax Exempt and 
Government Entities division, we were able to obtain data on the 
number of taxpayers claiming 13 of the 24 corporate-only tax 
expenditures, including credits, deductions, or exemptions. IRS was 
not able to provide data on the remaining eleven tax expenditures 
generally because they could not be isolated on an IRS form. To assess 
the reliability of the data and estimates, we reviewed agency 
documentation, interviewed agency officials, and reviewed our prior 
reports that have used the data and estimates. While we determined 
that the Treasury and IRS data and estimates were sufficiently 
reliable for our purposes, the IRS SOI corporate sample may not 
provide a precise estimate of the number of taxpayers claiming a tax 
expenditure when the number of taxpayers is very small.[Footnote 30] 

Comparison of Estimated Revenue Losses and Federal Outlays and 
Reported Purpose and Those Federal Activities That Appear to Share a 
Similar Purpose: 

To analyze how large corporate tax expenditures are in comparison to 
federal spending by budget function, we summed the estimated revenue 
losses for those tax expenditures with corporate revenue losses in 
fiscal year 2011 by budget function from the fiscal year 2013 
Analytical Perspectives. We compared them to federal outlays by budget 
function in fiscal year 2011, using data from the President's fiscal 
year 2013 budget. Outlay-equivalent estimates--the amount of outlays 
required to deliver the same after-tax income as provided through the 
tax expenditure--may provide for a more appropriate comparison to 
federal spending than estimated revenue losses if particular outlays 
represent taxable income to the recipient. However, Treasury no longer 
estimates outlay equivalent values for tax expenditures and therefore, 
estimated revenue losses were used instead. 

For this report we identified related programs based on a narrow 
reported purpose specific to the type of entity or activity that the 
corporate-only tax expenditures support or target. The corporate-only 
tax expenditures may have additional broader or different purposes. 
Using the narrow reported purposes allowed us to identify the tax and 
nontax programs that appear to most closely support the activity or 
entity the corporate-only tax expenditures support. We defined the 
narrow reported purpose as providing support for a certain activity or 
entity or in some cases, where the materials we reviewed discussed the 
tax expenditure as intended to encourage or increase a certain 
activity, we described the reported purpose as encouraging that type 
of activity. To identify the reported purpose of corporate-only tax 
expenditures, we reviewed their legislative histories and prior work 
by GAO, the Congressional Research Service (CRS), including the CRS's 
2010 tax expenditure compendium, and the Congressional Budget Office 
(CBO) that discussed the intended purpose or rationale of the tax 
expenditure.[Footnote 31] However, in identifying the narrow reported 
purposes we were not trying to discern legislative intent. For some 
tax expenditures, the reported purpose may be clear from reviewing 
these sources, while for others the reported purpose may be more 
difficult to determine. Some tax expenditures support a certain type 
of entity but the reported purpose or rationale for providing support 
to that entity is difficult to determine or may have changed over 
time. Therefore, we describe the reported purpose as support for a 
type of entity, and we did not reconstruct the historical basis for 
providing such support.[Footnote 32] 

To identify federal spending programs that appear to share a similar 
reported purpose, we searched the October 2012 version of the Catalog 
of Federal Domestic Assistance (CFDA) using terms from the description 
of the corporate-only tax expenditures. We reviewed programs listed 
under the same budget functions and reviewed the descriptions of the 
programs initially identified to determine if they appear to share a 
similar reported purpose. We identified related tax expenditures by 
reviewing the fiscal year 2013 Analytical Perspectives, supplemented 
with the description in CRS's 2010 tax expenditure compendium. 
[Footnote 33] 

For the inventory of related federal spending programs and tax 
expenditures, we collected descriptive information about each program, 
including (1) the name of the program, (2) the administering or 
implementing agencies or entities, and (3) the type of assistance 
provided. This information was collected from the October 2012 CFDA, 
fiscal year 2013 Analytical Perspectives, and agency documentation. 
[Footnote 34] The data we collected from the October 2012 CFDA for 
each of these three data elements was entered in the CFDA by the 
federal agencies responsible for the programs, but the agencies 
responsible did not verify our analysis of those data or 
identification of related programs. After reviewing CFDA 
documentation, our prior reports that have used the data, and spot 
checking these three data element against other publicly available 
agency documentation, we determined the data were reliable for our 
purposes. In reporting the administering or implementing agencies or 
entities, we generally reported the federal department level rather 
than the sub-department level agency except for IRS and the 
Environmental Protection Agency. In addition, for reporting the type 
of assistance, we grouped the types of assistance into the following 
categories: grant, cooperative agreement, direct payment, direct loan, 
guaranteed loan, insured loan, regulation/standard, tax exclusions, 
exemptions, or deductions, tax credits, deferrals of tax, and 
preferential tax rates. In some cases, the CFDA identified the 
programs we identified as providing multiple types of assistance 
listed above. 

The list of nontax programs we identified that appear to share a 
similar specific reported purpose has not been reviewed by the 
agencies responsible for them. Treasury and IRS reviewed our 
identification of related tax expenditures. The list of tax and nontax 
programs, shown in appendix VI, does not represent a comprehensive 
list of related federal activities for several reasons: 

* The CFDA may not capture certain types of federal activities, such 
as regulations or standards. Based on our prior work, we were able to 
identify some regulatory programs which we believe also appear to 
share a similar reported purpose to the tax expenditures in our scope. 

* The federal spending programs and activities identified may also 
have multiple reported purposes, and only a component of the program 
or activity may appear to specifically share a similar reported 
purpose to the tax expenditure. 

* Using a broader or different reported purpose to identify federal 
activities that appear to share a similar reported purpose would 
likely alter the makeup of activities that appear to be related. 

We conducted our work from October 2012 to March 2013 in accordance 
with all sections of GAO's Quality Assurance Framework that are 
relevant to our objectives. The framework requires that we plan and 
perform the engagement to obtain sufficient and appropriate evidence 
to meet our stated objectives and to discuss any limitations in our 
work. We believe that the information and data obtained, and the 
analysis conducted, provide a reasonable basis for any findings and 
conclusions in this product. 

[End of section] 

Appendix II: Fifty-Six Tax Expenditures with Estimated Corporate and 
Individual Revenue Losses Reported by Treasury, by Largest Estimated 
Corporate Revenue Losses, 2011: 

Tax expenditure: Accelerated depreciation of machinery and equipment; 
Estimated corporate revenue losses (dollars in millions): $76,140; 
Corporate share of total estimated revenue losses[A]: 64.2%; 
Budget function: Commerce and housing. 

Tax expenditure: Deduction for U.S. production activities; 
Estimated corporate revenue losses (dollars in millions): $9,840; 
Corporate share of total estimated revenue losses[A]: 74.9%; 
Budget function: Commerce and housing. 

Tax expenditure: Credit for increasing research activities; 
Estimated corporate revenue losses (dollars in millions): $8,300; 
Corporate share of total estimated revenue losses[A]: 94.7%; 
Budget function: General science, space, and technology. 

Tax expenditure: Exclusion of interest on public purpose State and 
local bonds; 
Estimated corporate revenue losses (dollars in millions): $7,570; 
Corporate share of total estimated revenue losses[A]: 28.9%; 
Budget function: General purpose fiscal assistance. 

Tax expenditure: Credit for low-income housing investments[B]; 
Estimated corporate revenue losses (dollars in millions): $5,840; 
Corporate share of total estimated revenue losses[A]: 95.0%; 
Budget function: Commerce and housing. 

Tax expenditure: Exclusion of interest on life insurance savings; 
Estimated corporate revenue losses (dollars in millions): $2,420; 
Corporate share of total estimated revenue losses[A]: 11.0%; 
Budget function: Commerce and housing. 

Tax expenditure: Deductibility of charitable contributions, other than 
education and health[C]; 
Estimated corporate revenue losses (dollars in millions): $1,430; 
Corporate share of total estimated revenue losses[A]: 4.8%; 
Budget function: Education, training, employment, and social services. 

Tax expenditure: Energy production credit[D]; 
Estimated corporate revenue losses (dollars in millions): $1,410; 
Corporate share of total estimated revenue losses[A]: 90.4%; 
Budget function: Energy. 

Tax expenditure: Special Employee Stock Ownership Plan rules; 
Estimated corporate revenue losses (dollars in millions): $1,030; 
Corporate share of total estimated revenue losses[A]: 68.7%; 
Budget function: Income security. 

Tax expenditure: Excess of percentage over cost depletion, fuels; 
Estimated corporate revenue losses (dollars in millions): $1,010; 
Corporate share of total estimated revenue losses[A]: 84.9%; 
Budget function: Energy. 

Tax expenditure: Expensing of research and experimentation 
expenditures; 
Estimated corporate revenue losses (dollars in millions): $960; 
Corporate share of total estimated revenue losses[A]: *; 
Budget function: General science, space, and technology. 

Tax expenditure: Exclusion of interest on hospital construction bonds; 
Estimated corporate revenue losses (dollars in millions): $900; 
Corporate share of total estimated revenue losses[A]: 29.0%; 
Budget function: Health. 

Tax expenditure: Work opportunity tax credit; 
Estimated corporate revenue losses (dollars in millions): $860; 
Corporate share of total estimated revenue losses[A]: 77.5%; 
Budget function: Education, training, employment, and social services. 

Tax expenditure: New markets tax credit; 
Estimated corporate revenue losses (dollars in millions): $800; 
Corporate share of total estimated revenue losses[A]: 97.6%; 
Budget function: Community and regional development. 

Tax expenditure: Deductibility of charitable contributions 
(education)[C]; 
Estimated corporate revenue losses (dollars in millions): $650; 
Corporate share of total estimated revenue losses[A]: 18.5%; 
Budget function: Education, training, employment, and social services. 

Tax expenditure: Exclusion of interest on bonds for private nonprofit 
educational facilities; 
Estimated corporate revenue losses (dollars in millions): $610; 
Corporate share of total estimated revenue losses[A]: 29.0%; 
Budget function: Education, training, employment, and social services. 

Tax expenditure: Energy investment credit[D]; 
Estimated corporate revenue losses (dollars in millions): $560; 
Corporate share of total estimated revenue losses[A]: 80.0%; 
Budget function: Energy. 

Tax expenditure: Excess of percentage over cost depletion, nonfuel 
minerals; 
Estimated corporate revenue losses (dollars in millions): $550; 
Corporate share of total estimated revenue losses[A]: 94.8%; 
Budget function: Natural resources and environment. 

Tax expenditure: Alcohol fuel credits[E]; 
Estimated corporate revenue losses (dollars in millions): $480; 
Corporate share of total estimated revenue losses[A]: 96.0%; 
Budget function: Energy. 

Tax expenditure: Tax incentives for preservation of historic 
structures; 
Estimated corporate revenue losses (dollars in millions): $470; 
Corporate share of total estimated revenue losses[A]: 92.2%; 
Budget function: Natural resources and environment. 

Tax expenditure: Empowerment zones, the D.C. enterprise zone, and 
renewal communities; 
Estimated corporate revenue losses (dollars in millions): $450; 
Corporate share of total estimated revenue losses[A]: 45.9%; 
Budget function: Community and regional development. 

Tax expenditure: Expensing of exploration and development costs, fuels; 
Estimated corporate revenue losses (dollars in millions): $440; 
Corporate share of total estimated revenue losses[A]: 88.0%; 
Budget function: Energy. 

Tax expenditure: Advanced Energy Property Credit; 
Estimated corporate revenue losses (dollars in millions): $390; 
Corporate share of total estimated revenue losses[A]: 90.7%; 
Budget function: Energy. 

Tax expenditure: Exclusion of interest on owner-occupied mortgage 
subsidy bonds; 
Estimated corporate revenue losses (dollars in millions): $310; 
Corporate share of total estimated revenue losses[A]: 29.2%; 
Budget function: Commerce and housing. 

Tax expenditure: Credit for employee health insurance expenses of 
small business[F]; 
Estimated corporate revenue losses (dollars in millions): $270; 
Corporate share of total estimated revenue losses[A]: 32.5%; 
Budget function: Health. 

Tax expenditure: Exclusion of interest on rental housing bonds; 
Estimated corporate revenue losses (dollars in millions): $260; 
Corporate share of total estimated revenue losses[A]: 28.9%; 
Budget function: Commerce and housing. 

Tax expenditure: Exclusion of interest for airport, dock, and similar 
bonds; 
Estimated corporate revenue losses (dollars in millions): $200; 
Corporate share of total estimated revenue losses[A]: 28.6%; 
Budget function: Community and regional development. 

Tax expenditure: Deductibility of charitable contributions (health)[C]; 
Estimated corporate revenue losses (dollars in millions): $190; 
Corporate share of total estimated revenue losses[A]: 5.6%; 
Budget function: Health. 

Tax expenditure: Expensing of environmental remediation costs; 
Estimated corporate revenue losses (dollars in millions): $170; 
Corporate share of total estimated revenue losses[A]: 85.0%; 
Budget function: Community and regional development. 

Tax expenditure: Expensing of multiperiod timber growing costs; 
Estimated corporate revenue losses (dollars in millions): $160; 
Corporate share of total estimated revenue losses[A]: 64.0%; 
Budget function: Natural resources and environment. 

Tax expenditure: Exclusion of interest on student-loan bonds; 
Estimated corporate revenue losses (dollars in millions): $140; 
Corporate share of total estimated revenue losses[A]: 29.2%; 
Budget function: Education, training, employment, and social services. 

Tax expenditure: Special rules for certain film and TV production; 
Estimated corporate revenue losses (dollars in millions): $130; 
Corporate share of total estimated revenue losses[A]: 81.3%; 
Budget function: Commerce and housing. 

Tax expenditure: Tax credit for certain expenditures for maintaining 
railroad tracks; 
Estimated corporate revenue losses (dollars in millions): $130; 
Corporate share of total estimated revenue losses[A]: 81.3%; 
Budget function: Transportation. 

Tax expenditure: Exclusion of interest on bonds for water, sewage, and 
hazardous waste facilities; 
Estimated corporate revenue losses (dollars in millions): $120; 
Corporate share of total estimated revenue losses[A]: 28.6%; 
Budget function: Natural resources and environment. 

Tax expenditure: Amortize all geological and geophysical expenditures 
over 2 years; 
Estimated corporate revenue losses (dollars in millions): $100; 
Corporate share of total estimated revenue losses[A]: 83.3%; 
Budget function: Energy. 

Tax expenditure: Exclusion of interest on small issue bonds; 
Estimated corporate revenue losses (dollars in millions): $70; 
Corporate share of total estimated revenue losses[A]: 29.2%; 
Budget function: Commerce and housing. 

Tax expenditure: Allowance of deduction for certain energy efficient 
commercial building property; 
Estimated corporate revenue losses (dollars in millions): $60; 
Corporate share of total estimated revenue losses[A]: 75.0%; 
Budget function: Energy. 

Tax expenditure: Qualified school construction bonds[G]; 
Estimated corporate revenue losses (dollars in millions): $60; 
Corporate share of total estimated revenue losses[A]: 28.6%; 
Budget function: Education, training, employment, and social services. 

Tax expenditure: Tribal Economic Development Bonds; 
Estimated corporate revenue losses (dollars in millions): $60; 
Corporate share of total estimated revenue losses[A]: 35.3%; 
Budget function: Community and regional development. 

Tax expenditure: Exclusion of interest on bonds for Highway Projects 
and rail-truck transfer facilities; 
Estimated corporate revenue losses (dollars in millions): $60; 
Corporate share of total estimated revenue losses[A]: 24.0%; 
Budget function: Transportation. 

Tax expenditure: Exclusion of gain or loss on sale or exchange of 
certain brownfield sites; 
Estimated corporate revenue losses (dollars in millions): $40; 
Corporate share of total estimated revenue losses[A]: 66.7%; 
Budget function: Natural resources and environment. 

Tax expenditure: Tax credit and deduction for clean-fuel burning 
vehicles; 
Estimated corporate revenue losses (dollars in millions): $40; 
Corporate share of total estimated revenue losses[A]: 44.4%; 
Budget function: Energy. 

Tax expenditure: Employee retention credit for employers in certain 
federal disaster areas; 
Estimated corporate revenue losses (dollars in millions): $20; 
Corporate share of total estimated revenue losses[A]: 66.7%; 
Budget function: Education, training, employment, and social services. 

Tax expenditure: Credit to holders of Gulf Tax Credit Bonds; 
Estimated corporate revenue losses (dollars in millions): $20; 
Corporate share of total estimated revenue losses[A]: 25.0%; 
Budget function: Community and regional development. 

Tax expenditure: Credit for holding clean renewable energy bonds[H]; 
Estimated corporate revenue losses (dollars in millions): $20; 
Corporate share of total estimated revenue losses[A]: 28.6%; 
Budget function: Energy. 

Tax expenditure: Credit for construction of new energy efficient homes; 
Estimated corporate revenue losses (dollars in millions): $20; 
Corporate share of total estimated revenue losses[A]: 40.0%; 
Budget function: Energy. 

Tax expenditure: Exclusion of interest on energy facility bonds; 
Estimated corporate revenue losses (dollars in millions): $10; 
Corporate share of total estimated revenue losses[A]: 50.0%; 
Budget function: Energy. 

Tax expenditure: Deduction for endangered species recovery 
expenditures; 
Estimated corporate revenue losses (dollars in millions): $10; 
Corporate share of total estimated revenue losses[A]: 50.0%; 
Budget function: Natural resources and environment. 

Tax expenditure: Investment credit for rehabilitation of structures 
(other than historic); 
Estimated corporate revenue losses (dollars in millions): $10; 
Corporate share of total estimated revenue losses[A]: 50.0%; 
Budget function: Community and regional development. 

Tax expenditure: Credit for disabled access expenditures; 
Estimated corporate revenue losses (dollars in millions): $10; 
Corporate share of total estimated revenue losses[A]: 50.0%; 
Budget function: Education, training, employment, and social services. 

Tax expenditure: Exclusion of utility conservation subsidies; 
Estimated corporate revenue losses (dollars in millions): $10; 
Corporate share of total estimated revenue losses[A]: 4.5%; 
Budget function: Energy. 

Tax expenditure: Expensing of certain multiperiod production costs; 
Estimated corporate revenue losses (dollars in millions): $10; 
Corporate share of total estimated revenue losses[A]: 7.7%; 
Budget function: Agriculture. 

Tax expenditure: Expensing of reforestation expenditures; 
Estimated corporate revenue losses (dollars in millions): $10; 
Corporate share of total estimated revenue losses[A]: 16.7%; 
Budget function: Agriculture. 

Tax expenditure: Accelerated depreciation on rental housing; 
Estimated corporate revenue losses (dollars in millions): ($20); 
Corporate share of total estimated revenue losses[A]: 14.3%; 
Budget function: Commerce and housing. 

Tax expenditure: Expensing of certain small investments; 
Estimated corporate revenue losses (dollars in millions): ($40); 
Corporate share of total estimated revenue losses[A]: *; 
Budget function: Commerce and housing. 

Tax expenditure: Accelerated depreciation of buildings other than 
rental housing; 
Estimated corporate revenue losses (dollars in millions): ($3,300); 
Corporate share of total estimated revenue losses[A]: 45.3%; 
Budget function: Commerce and housing. 

Tax expenditure: Total; 
Estimated corporate revenue losses (dollars in millions): $122,470. 

Source: GAO analysis of Office of Management and Budget budget data on 
tax expenditures, fiscal year 2013. 

Note: Estimated revenue losses were negative for either corporations 
or individuals, meaning corporate revenue losses made up greater than 
100 percent of the sum of both. 

[A] The total includes estimated individual revenue losses. 

[B] In addition, the credit for low-income housing investments has 
outlay effects of $3,480 million in 2011. 

[C] Treasury estimates separate the deductibility of charitable 
contributions into three separate tax expenditures, deductibility for 
charitable contributions (health), deductibility for charitable 
contributions (education), deductibility for charitable contributions, 
other than health and education. 

[D] Firms can request an energy grant in lieu of the energy production 
credit or the energy investment credit for facilities placed in 
service in 2009 and 2010 or whose construction commenced in 2009 and 
2010.The effect of the grant on outlays was $3,510 million in 2011. 
See Office of Management and Budget, Analytical Perspectives, Budget 
of the United States Government, Fiscal Year 2013, (Washington, D.C.: 
2012). 

[E] In addition, the alcohol fuel mixture credit results in a 
reduction in excise tax receipts of $6,520 million in 2011. 

[F] In addition, the small business credit provision has outlay 
effects of $30 million in 2011. 

[G] In addition, the provision for school construction bonds has 
outlay effects of $430 million in 2011. 

[H] In addition, the provision has outlay effects of $20 million in 
2011. 

[End of table] 

[End of section] 

Appendix III: Twenty-Four Tax Expenditures with Only Estimated 
Corporate Revenue Losses Reported by Treasury, by Largest Estimated 
Corporate Revenue Losses, 2011: 

Tax expenditure: Deferral of income from controlled foreign 
corporations; 
Estimated corporate revenue losses (dollars in millions): $41,410; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 22.82%; 
Budget function: International affairs. 

Tax expenditure: Deferred taxes for financial firms on certain income 
earned overseas; 
Estimated corporate revenue losses (dollars in millions): $6,180; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 3.41%; 
Budget function: International affairs. 

Tax expenditure: Graduated corporation income tax rate; 
Estimated corporate revenue losses (dollars in millions): $3,280; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 1.81%; 
Budget function: Commerce and housing. 

Tax expenditure: Inventory property sales source rules exception; 
Estimated corporate revenue losses (dollars in millions): $3,160; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 1.74%; 
Budget function: International affairs. 

Tax expenditure: Exemption of credit union income; 
Estimated corporate revenue losses (dollars in millions): $1,110; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.61%; 
Budget function: Commerce and housing. 

Tax expenditure: Tax credit for orphan drug research; 
Estimated corporate revenue losses (dollars in millions): $770; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.42%; 
Budget function: Health. 

Tax expenditure: Special Blue Cross/Blue Shield deduction; 
Estimated corporate revenue losses (dollars in millions): $715; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.39%; 
Budget function: Health. 

Tax expenditure: Temporary 50 percent expensing for equipment used in 
the refining of liquid fuels; 
Estimated corporate revenue losses (dollars in millions): $670; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.37%; 
Budget function: Energy. 

Tax expenditure: Credit for investment in clean coal facilities; 
Estimated corporate revenue losses (dollars in millions): $370; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.20%; 
Budget function: Energy. 

Tax expenditure: Credit for energy efficient appliances; 
Estimated corporate revenue losses (dollars in millions): $280; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.15%; 
Budget function: Energy. 

Tax expenditure: Tax exemption of certain insurance companies owned by 
tax-exempt organizations; 
Estimated corporate revenue losses (dollars in millions): $200; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.11%; 
Budget function: Commerce and housing. 

Tax expenditure: Credit for holders of zone academy bonds[A]; 
Estimated corporate revenue losses (dollars in millions): $200; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.11%; 
Budget function: Education, training, employment, and social services. 

Tax expenditure: Deferral of gain from dispositions of transmission 
property to implement Federal Energy Regulatory Commission 
restructuring policy; 
Estimated corporate revenue losses (dollars in millions): $120; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.07%; 
Budget function: Energy. 

Tax expenditure: Natural gas distribution pipelines treated as 15-year 
property; 
Estimated corporate revenue losses (dollars in millions): $120; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.07%; 
Budget function: Energy. 

Tax expenditure: Exemption of certain mutuals' and cooperatives' 
income; 
Estimated corporate revenue losses (dollars in millions): $110; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.06%; 
Budget function: Community and regional development. 

Tax expenditure: Expensing of exploration and development costs, 
nonfuel minerals; 
Estimated corporate revenue losses (dollars in millions): $60; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.03%; 
Budget function: Natural resources and environment. 

Tax expenditure: Industrial carbon dioxide (CO2) capture and 
sequestration tax credit; 
Estimated corporate revenue losses (dollars in millions): $60; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.03%; 
Budget function: Natural resources and environment. 

Tax expenditure: Special alternative tax on small property and 
casualty insurance companies; 
Estimated corporate revenue losses (dollars in millions): $40; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.02%; 
Budget function: Commerce and housing. 

Tax expenditure: Small life insurance company deduction; 
Estimated corporate revenue losses (dollars in millions): $30; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.02%; 
Budget function: Commerce and housing. 

Tax expenditure: Bio-diesel and small agri-biodiesel producer tax 
credits[B]; 
Estimated corporate revenue losses (dollars in millions): $20; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.01%; 
Budget function: Energy. 

Tax expenditure: Deferral of gain on sale of farm refiners; 
Estimated corporate revenue losses (dollars in millions): $20; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.01%; 
Budget function: Agriculture. 

Tax expenditure: Deferral of tax on shipping companies[C]; 
Estimated corporate revenue losses (dollars in millions): $20; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.01%; 
Budget function: Transportation. 

Tax expenditure: Alternative fuel production credit; 
Estimated corporate revenue losses (dollars in millions): $10; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.01%; 
Budget function: Energy. 

Tax expenditure: Employer-provided child care credit; 
Estimated corporate revenue losses (dollars in millions): $10; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 0.01%; 
Budget function: Education, training, employment, and social services. 

Tax expenditure: Total; 
Estimated corporate revenue losses (dollars in millions): $58,965; 
Estimated revenue losses as a percentage of all corporate revenue 
losses: 32.50%. 

Source: GAO analysis of Office of Management and Budget budget data on 
tax expenditures, fiscal year 2013. 

[A] In addition, the credit for holders of zone academy bonds had 
outlay effects totaling $10 million in 2011. 

[B] In addition, the biodiesel producer tax credit results in a 
reduction in excise tax receipts of $760 million in 2011. 

[C] These figures do not account for the tonnage tax which shipping 
companies may opt into in lieu of the corporate income tax. The 
tonnage tax reduces the cost of this tax expenditure by $20 per year 
in each year of the budget. 

[End of table] 

[End of section] 

Appendix IV: Number of Corporate Taxpayer Recipients for Corporate-
Only Tax Expenditures, 2010: 

Tax expenditure: Tax exemption of certain insurance companies owned by 
tax-exempt organizations; 
Number of taxpayer recipients: 11,749[A]. 

Tax expenditure: Exemption of certain mutuals' and cooperatives' 
income[B]; 
Number of taxpayer recipients: 6,996[A]. 

Tax expenditure: Exemption of credit union income[C]; 
Number of taxpayer recipients: 3,570[A]. 

Tax expenditure: Special alternative tax on small property and 
casualty insurance companies[D]; 
Number of taxpayer recipients: 1,812[A]. 

Tax expenditure: Bio-diesel and small agri-biodiesel producer tax 
credits; 
Number of taxpayer recipients: 426. 

Tax expenditure: Small life insurance company deduction; 
Number of taxpayer recipients: 325. 

Tax expenditure: Employer-provided child care credit; 
Number of taxpayer recipients: 216. 

Tax expenditure: Tax credit for orphan drug research; 
Number of taxpayer recipients: 99. 

Tax expenditure: Alternative fuel production credit; 
Number of taxpayer recipients: 16[E]. 

Tax expenditure: Special Blue Cross/Blue Shield deduction; 
Number of taxpayer recipients: 14. 

Tax expenditure: Credit for energy efficient appliances; 
Number of taxpayer recipients: 5. 

Source: GAO analysis of Internal Revenue Service Statistics of Income 
Corporate Tax File Data estimates, 2010 and IRS Tax Exempt and 
Government Entities, Exempt Organizations, fiscal year 2011. 

Note: Data on tax credits and deductions are from IRS SOI corporate 
file and includes active corporations that filed a return on forms 
1120, 1120-F, 1120-L, and 1120-PC but not forms 1120S, 1120-REIT, and 
1120-RIC. For two tax credits, IRS had data on the number of tax 
recipients but to avoid disclosure of specific taxpayers could not 
report this data because there were so few taxpayers claiming those 
tax credits. Based on the number of sampled returns and the 
coefficients of variation provided by Internal Revenue Service 
Statistics of Income, we estimate that the upper bound of a 95 percent 
confidence interval for the estimated total number is less than 830 
corporations for the following tax expenditures: alternative fuel 
production credit, bio-diesel and small agri-biodiesel producer tax 
credits, credit for energy efficient appliances, employer-provided 
child care credit, tax credit for orphan drug research, small life 
insurance company deduction, and Special Blue Cross/Blue Shield 
deduction. Data on exemptions are from IRS Tax Exempt and Government 
Entities, Exempt Organizations division. Information from tax-exempt 
organization returns is available to the public and not subject to IRS 
disclosure regulations. 

[A] Fiscal year 2010 data, Internal Revenue Service Tax Exempt and 
Government Entities, Exempt Organizations. 

[B] Includes only benevolent life insurance associations. 

[C] State chartered credit unions exempt from federal income tax under 
section 501(c) (14) (A) of the Internal Revenue Code are required to 
file an annual information returns while Federally chartered credits 
unions are tax exempt under section 501(c) (1) but are not required to 
file an annual information return and therefore Internal Revenue 
Service does not report the number of Federally chartered credit 
unions. 

[D] Includes only mutual insurance companies. 

[E] According to the Internal Revenue Service Statistics of Income 
division, estimate should be used with caution due to small number 
sampled returns claiming this credit. 

[End of table] 

[End of section] 

Appendix V: Reported Purpose Supporting a Specific Activity or Entity 
for 24 Corporate-Only Tax Expenditures: 

Number: 1; 
Tax expenditure: Inventory property sales source rules exception; 
Reported purpose: Support for firms that produce goods domestically 
and export. 

Number: 2; 
Tax expenditure: Deferral of income from controlled foreign 
corporations; 
Reported purpose: Support for firms that operate in foreign countries. 

Number: 3; 
Tax expenditure: Deferred taxes for financial firms on certain income 
earned overseas; 
Reported purpose: Support for firms that operate in foreign countries. 

Number: 4; 
Tax expenditure: Alternative fuel production credit; 
Reported purpose: Encourage production of nonconventional fuels. 

Number: 5; 
Tax expenditure: Bio-diesel and small agri-biodiesel producer tax 
credits; 
Reported purpose: Encourage production of biodiesel fuels. 

Number: 6; 
Tax expenditure: Deferral of gain from dispositions of transmission 
property to implement; 
; 
Federal Energy Regulatory Commission restructuring policy; 
Reported purpose: Support for independent transmission companies. 

Number: 7; 
Tax expenditure: Credit for investment in clean coal facilities; 
Reported purpose: Encourage development of clean coal technologies. 

Number: 8; 
Tax expenditure: Temporary 50 percent expensing for equipment used in 
the refining of liquid fuels; 
Reported purpose: Encourage development of fossil fuel refinery 
capacity. 

Number: 9; 
Tax expenditure: Natural gas distribution pipelines treated as 15-year 
property; 
Reported purpose: Encourage development of natural gas pipeline 
infrastructure. 

Number: 10; 
Tax expenditure: Credit for energy efficient appliances; 
Reported purpose: Encourage production of energy efficient appliances. 

Number: 11; 
Tax expenditure: Expensing of exploration and development costs, 
nonfuel minerals; 
Reported purpose: Encourage nonfuel mineral exploration and 
development. 

Number: 12; 
Tax expenditure: Industrial carbon dioxide (CO2) capture and 
sequestration tax credit; 
Reported purpose: Encourage development of carbon capture and 
sequestration technologies. 

Number: 13; 
Tax expenditure: Deferral of gain on sale of farm refiners; 
Reported purpose: Support to facilitate transfer of refiners and 
processors to farmers' cooperatives. 

Number: 14; 
Tax expenditure: Exemption of credit union income; 
Reported purpose: Support for firms organized as credit unions. 

Number: 15; 
Tax expenditure: Special alternative tax on small property and 
casualty insurance companies; 
Reported purpose: Support for small property and casualty insurance 
companies. 

Number: 16; 
Tax expenditure: Tax exemption of certain insurance companies owned by 
tax-exempt organizations; 
Reported purpose: Support for insurance companies owned by tax-exempt 
organizations. 

Number: 17; 
Tax expenditure: Small life insurance company deduction; 
Reported purpose: Support for small life insurance companies. 

Number: 18; 
Tax expenditure: Graduated corporation income tax rate; 
Reported purpose: Support for small businesses and encourage corporate 
form of legal organization. 

Number: 19; 
Tax expenditure: Deferral of tax on shipping companies; 
Reported purpose: Support for domestic shipbuilding and registry under 
U.S. flag. 

Number: 20; 
Tax expenditure: Exemption of certain mutuals' and cooperatives' 
income; 
Reported purpose: Support for certain mutuals' and cooperatives' such 
as life insurance associations and telephone and electric companies. 

Number: 21; 
Tax expenditure: Credit for holders of zone academy bonds; 
Reported purpose: Support for school renovation, equipment, teacher 
training, and course materials in economically distressed areas. 

Number: 22; 
Tax expenditure: Employer-provided child care credit; 
Reported purpose: Encourage development of on-site employer child care 
facilities. 

Number: 23; 
Tax expenditure: Tax credit for orphan drug research; 
Reported purpose: Encourage drug research and development for rare 
diseases. 

Number: 24; 
Tax expenditure: Special Blue Cross/Blue Shield deduction; 
Reported purpose: Support for Blue Cross/Blue Shield organizations. 

Source: GAO analysis of Congressional Budget Office, Congressional 
Research Service, and GAO studies and legislative history. 

Note: See appendix I for more detail on our methodology. 

[End of table] 

[End of section] 

Appendix VI: Federal Activities That Appear to Share a Similar Purpose 
to 24 Corporate-Only Tax Expenditures: 

Number: 1; 
Tax expenditure: Inventory property sales source rules exception; 
Related federal activities: Export Guarantee Program; 
Administering agency: Department of Agriculture; 
Type of assistance: Guaranteed/insured loan. 

Related federal activities: Emerging Markets Program; 
Administering agency: Department of Agriculture; 
Type of assistance: Direct payment. 

Related federal activities: Foreign Market Development Cooperator 
Program; 
Administering agency: Department of Agriculture; 
Type of assistance: Direct payment. 

Related federal activities: Market Access Program; 
Administering agency: Department of Agriculture; 
Type of assistance: Direct payment. 

Related federal activities: Technical Assistance for Specialty Crops 
Program; 
Administering agency: Department of Agriculture; 
Type of assistance: Direct payment. 

Related federal activities: Quality Samples Program; 
Administering agency: Department of Agriculture; 
Type of assistance: Direct payment. 

Related federal activities: CCC's Dairy Export Incentive Program; 
Administering agency: Department of Agriculture; 
Type of assistance: Direct payment. 

Number: 2; 
Tax expenditure: Deferral of income from controlled foreign 
corporations; 
Related federal activities: Deferred taxes for financial firms on 
certain income earned overseas; 
Administering agency: Internal Revenue Service; 
Type of assistance: Deferral of tax. 

Number: 3; 
Tax expenditure: Deferred taxes for financial firms on certain income 
earned overseas; 
Related federal activities: Deferral of income from controlled foreign 
corporations; 
Administering agency: Internal Revenue Service; 
Type of assistance: Deferral of tax. 

Number: 4; 
Tax expenditure: Alternative fuel production credit; 
Related federal activities: None identified; 
Administering agency: [Empty]; 
Type of assistance: [Empty]. 

Number: 5; 
Tax expenditure: Bio-diesel and small agri-biodiesel producer tax 
credits; 
Related federal activities: Bioenergy Program for Advanced Biofuels; 
Administering agency: Department of Agriculture; 
Type of assistance: Direct payment. 

Related federal activities: Biorefinery Assistance; 
Administering agency: Department of Agriculture; 
Type of assistance: Guaranteed/insured loan. 

Related federal activities: Integrated Biorefineries; 
Administering agency: Department of Energy; 
Type of assistance:Grant. 

Number: 6; 
Tax expenditure: Deferral of gain from dispositions of transmission 
property to implement Federal Energy Regulatory Commission 
restructuring policy; 
Related federal activities: None identified; 
Administering agency: [Empty]; 
Type of assistance: [Empty]. 

Number: 7; 
Tax expenditure: Credit for investment in clean coal facilities; 
Related federal activities: Clean Coal Power Initiative; 
Administering agency: Department of Energy; 
Type of assistance: Cooperative agreement. 

Related federal activities: Carbon Capture and Storage - FutureGen 2.0; 
Administering agency: Department of Energy; 
Type of assistance: Cooperative agreement. 

Related federal activities: Industrial carbon dioxide (CO2) capture 
and sequestration tax credit; 
Administering agency: Internal Revenue Service; 
Type of assistance: Tax credit. 

Related federal activities: Qualified energy conservation bonds; 
Administering agency: Internal Revenue Service; 
Type of assistance: Tax credit. 

Related federal activities: Advanced energy property credit; 
Administering agency: Internal Revenue Service; 
Type of assistance: Tax credit. 

Number: 8; 
Tax expenditure: Temporary 50 percent expensing for equipment used in 
the refining of liquid fuels; 
Related federal activities: None identified; 
Administering agency:[Empty]; 
Type of assistance: [Empty]. 

Number: 9; 
Tax expenditure: Natural gas distribution pipelines treated as 15-year 
property; 
Related federal activities: None identified; 
Administering agency: [Empty]; 
Type of assistance: [Empty]. 

Number: 10; 
Tax expenditure: Credit for energy efficient appliances; 
Related federal activities: Energy Efficient Appliance Rebate Program; 
Administering agency: Department of Energy; 
Type of assistance: Grant. 

Related federal activities: Building Technologies Program Appliance & 
Equipment Standards; 
Administering agency: Department of Energy; 
Type of assistance: Regulation/standard. 

Related federal activities: Energy Star; 
Administering agency: Department of Energy/Environmental Protection 
Agency; 
Type of assistance: Regulation/standard. 

Number: 11; 
Tax expenditure: Expensing of exploration and development costs, 
nonfuel minerals; 
Related federal activities: Minerals Resources External Research 
Program; 
Administering agency: Department of the Interior; 
Type of assistance: Cooperative agreement. 

Related federal activities: U.S. Geological Survey Research and Data 
Collection; 
Administering agency: Department of the Interior; 
Type of assistance: Cooperative agreement. 

Related federal activities: Minerals and Mining on Indian Lands; 
Administering agency: Department of the Interior; 
Type of assistance: Cooperative agreement and technical assistance. 

Related federal activities: Excess of percentage over cost depletion, 
nonfuel minerals; 
Administering agency: Internal Revenue Service; 
Type of assistance: Tax exclusion, exemption, or deduction. 

Number: 12; 
Tax expenditure: Industrial carbon dioxide (CO2) capture and 
sequestration tax credit; 
Related federal activities: Carbon Capture and Storage - FutureGen 2.0; 
Administering agency: Department of Energy; 
Type of assistance: Cooperative agreement. 

Related federal activities: Industrial Carbon Capture and Storage 
(CCS) Application; 
Administering agency: Department of Energy; 
Type of assistance: Cooperative agreement. 

Related federal activities: Credit for investment in clean coal 
facilities; 
Administering agency: Internal Revenue Service; 
Type of assistance: Tax credit. 

Related federal activities: Qualified energy conservation bonds; 
Administering agency: Internal Revenue Service; 
Type of assistance: Tax exclusion, exemption, or deduction. 

Related federal activities: Advanced energy property credit; 
Administering agency: Internal Revenue Service; 
Type of assistance: Tax credit. 

Related federal activities: Geologic Sequestration of Carbon Dioxide; 
Administering agency: Environmental Protection Agency; 
Type of assistance: Regulation/standard. 

Number: 13; 
Tax expenditure: Deferral of gain on sale of farm refiners; 
Related federal activities: None identified; 
Administering agency: [Empty]; 
Type of assistance: [Empty]. 

Number: 14; 
Tax expenditure: Exemption of credit union income; 
Related federal activities: None identified; 
Administering agency: [Empty]; 
Type of assistance: [Empty]. 

Number: 15; 
Tax expenditure: Special alternative tax on small property and 
casualty insurance companies; 
Related federal activities: None identified; 
Administering agency: [Empty]; 
Type of assistance: [Empty]. 

Number: 16; 
Tax expenditure: Tax exemption of certain insurance companies owned by 
tax-exempt organizations; 
Related federal activities: None identified; 
Administering agency: [Empty]; 
Type of assistance: [Empty]. 

Number: 17; 
Tax expenditure: Small life insurance company deduction; 
Related federal activities: None identified; 
Administering agency: [Empty]; 
Type of assistance: [Empty]. 

Number: 18; 
Tax expenditure: Graduated corporation income tax rate; 
Related federal activities: None identified; 
Administering agency: [Empty]; 
Type of assistance: [Empty]. 

Number: 19; 
Tax expenditure: Deferral of tax on shipping companies; 
Related federal activities: Federal Ship Financing Guarantees; 
Administering agency: Department of Transportation; 
Type of assistance: Guaranteed/insured Loan. 

Related federal activities: Capital Construction Fund; 
Administering agency: Department of Transportation; 
Type of assistance: Deferral of tax. 

Related federal activities: Construction Reserve Fund; 
Administering agency: Department of Transportation; 
Type of assistance: Deferral of tax. 

Related federal activities: Assistance to Small Shipyards; 
Administering agency: Department of Transportation; 
Type of assistance: Direct payment. 

Related federal activities: Fisheries Finance Program; 
Administering agency: Department of Commerce; 
Type of assistance: Direct loan. 

Number: 20; 
Tax expenditure: Exemption of certain mutuals' and cooperatives' 
income; 
Related federal activities: None identified; 
Administering agency: [Empty]; 
Type of assistance: [Empty]. 

Number: 21; 
Tax expenditure: Credit for holders of zone academy bonds; 
Related federal activities: Qualified school construction bonds; 
Administering agency: Internal Revenue Service; 
Type of assistance: Tax credit. 

Number: 22; 
Tax expenditure: Employer-provided child care credit; 
Related federal activities: Employer provided child care exclusion; 
Administering agency: Internal Revenue Service; 
Type of assistance: Tax exclusion, exemption, or deduction. 

Number: 23; 
Tax expenditure: Tax credit for orphan drug research; 
Related federal activities: National Center for Advancing 
Translational Sciences; 
Administering agency: Department of Health and Human Services; 
Type of assistance: Grant. 

Related federal activities: National Center for Research Resources; 
Administering agency: Department of Health and Human Services; 
Type of assistance: Grant. 

Number: 24; 
Tax expenditure: Special Blue Cross/Blue Shield deduction; 
Related federal activities: None identified; 
Administering agency: [Empty]; 
Type of assistance: [Empty]. 

Source: GAO analysis of Catalog of Federal Domestic Assistance and 
agency documentation. 

Note: The list of nontax programs we identified that appear to share a 
similar specific reported purpose has not been reviewed by the 
agencies responsible for them. See appendix I for more detail on our 
methodology. 

[End of table] 

[End of section] 

Appendix VII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

James R. White, (202) 512-9110 or whitej@gao.gov: 

Staff Acknowledgments: 

In addition to the contact name above, MaryLynn Sergent (Assistant 
Director), Jason Vassilicos (Analyst-in-Charge), Kevin Daly, Robert 
Gebhart, Lois Hanshaw, Natalie Maddox, Donna Miller, Karen O'Conor, 
Mark Ryan, and Elwood D. White all made contributions to this report. 

[End of section] 

Footnotes: 

[1] GAO, Tax Expenditures: Background and Evaluation Criteria and 
Questions, [hyperlink, http://www.gao.gov/products/GAO-13-167SP] 
(Washington, D.C.: Nov. 29, 2012). 

[2] The functional classification system is a way of grouping 
budgetary resources so that all budget authority and outlays of on-
budget and off-budget federal entities and tax expenditures can be 
presented according to the national needs being addressed. National 
needs are grouped in 18 broad areas to provide a coherent and 
comprehensive basis for analyzing and understanding the budget. See 
GAO, A Glossary of Terms Used in the Federal Budget Process, 
[hyperlink, http://www.gao.gov/products/GAO-05-734SP] (Washington, 
D.C.: Sept. 1, 2005). 

[3] While sufficiently reliable as a gauge of general magnitude, 
summing revenue loss estimates does not take into account any 
interactions between tax expenditures. In addition, revenue loss 
estimates do not incorporate any behavioral responses and, thus, do 
not represent the revenue amount that would be gained if a specific 
tax expenditure was repealed. For further discussion on summing of tax 
expenditure estimates and examples, see GAO, Government Performance 
and Accountability: Tax Expenditures Represent a Substantial Federal 
Commitment and Need to Be Reexamined, [hyperlink, 
http://www.gao.gov/products/GAO-05-690] (Washington, D.C.: Sept. 23, 
2005). 

[4] Tax expenditures may be available to corporate and individual 
taxpayers, including other types of business entities other than 
corporations. Treasury estimates the portion of revenue losses 
associated with corporate or individual taxpayers for each tax 
expenditure in its list. According to Treasury's estimates, some tax 
expenditures may be used by only corporate taxpayers and some by only 
individual taxpayers while other tax expenditures may be used by both 
corporate and individual taxpayers. 

[5] When the number of taxpayers claiming a tax expenditure is small, 
even with a large sample such as the IRS SOI corporate sample, 
estimates for small subpopulations like these often have large 
confidence intervals. For three of the corporate-only tax 
expenditures, the estimated number of corporations claiming the 
expenditure was less than 17. See appendix I for additional detail on 
the IRS SOI corporate sample. 

[6] Office of Management and Budget, Analytical Perspectives, Budget 
of the United States Government, Fiscal Year 2013, (Washington, D.C.: 
2012) and U.S. Congress, Senate Committee on the Budget, Tax 
Expenditures: Compendium of Background Material on Individual 
Provisions, S. Prt. 111-58. Prepared by CRS (Washington, D.C.: 
December 2010). 

[7] The concept of tax expenditures extends beyond the income tax. Tax 
expenditures also exist for other types of taxes, such as excise and 
payroll taxes. For more detail on the normal structure of tax 
expenditures, see pg. 92 of GAO, Government Performance and 
Accountability: Tax Expenditures Represent a Substantial Federal 
Commitment and Need to Be Reexamined, [hyperlink, 
http://www.gao.gov/products/GAO-05-690] (Washington, D.C.: Sept. 23, 
2005). 

[8] Pub. L. No. 93-344, §3, 88 Stat. 297, 299 (July 12, 1974) 
(codified at 2 U.S.C. § 622(3)). Provisions must be compared to a 
"normal structure," or baseline, and the Congressional Budget and 
Impoundment Control Act did not define a specific baseline structure. 

[9] Office of Management and Budget, Analytical Perspectives, Budget 
of the United States Government, Fiscal Year 2013, (Washington, D.C.: 
2012); and Joint Committee on Taxation, Estimates of Federal Tax 
Expenditures for Fiscal Years 2011-2015, JCS-1-12, (Washington, D.C.: 
Jan. 17, 2012). 

[10] While, in general, the tax expenditure lists Treasury and the 
Joint Committee on Taxation publish annually are similar, they differ 
somewhat in the number of tax expenditures reported and the estimated 
revenue losses for particular expenditures because the organizations 
use different (1) income tax baselines; (2) de minimis amounts, which 
is the minimum revenue loss threshold for Treasury and the Joint 
Committee on Taxation to report a tax expenditure; and (3) economic 
and technical assumptions. For more information on how Treasury and 
the Joint Committee on Taxation estimate revenue loss, see appendix 
III of [hyperlink, http://www.gao.gov/products/GAO-05-690]. 

[11] S corporations are limited to no more than 100 shareholders and 
can only issue one class of stock. See CRS, Business Organizational 
Choices: Taxation and Response to Legislative Changes, (Washington, 
D.C.: Apr. 26, 2012). 

[12] Limited liability companies, business entities organized under 
state law, are treated under IRS default rules as partnerships or 
disregarded entities, depending on the number of members. If a limited 
liability company chooses not to be classified under the default 
classification, it can elect to be taxed as a C corporation or S 
corporation. Under the last option the company's income and expenses 
are simply attributed to its parent corporation. See GAO, Business Tax 
Reform: Simplification and Increased Uniformity of Taxation Would 
Yield Benefits, [hyperlink, http://www.gao.gov/products/GAO-06-1113T] 
(Washington, D.C.: Sept. 20, 2006). 

[13] See Tax Policy Center, How Big Are Total Individual Income Tax 
Expenditures, and Who Benefits from Them? Discussion Paper No. 31 
(December 2008) and GAO, Understanding the Tax Reform Debate: 
Background, Criteria, & Questions, [hyperlink, 
http://www.gao.gov/products/GAO-05-1009SP] (Washington, D.C.: Sept. 1, 
2005). 

[14] See IRS SOI, Corporation Complete Report. This data includes 
active corporations that filed a return on forms 1120, 1120-A (until 
2006), 1120-F, 1120-L, and 1120-PC but not forms 1120S, 1120-REIT, and 
1120-RIC. 

[15] Trends in the number of and estimated revenue losses for 
corporate tax expenditures are discussed later in this report. 

[16] GAO, Tax Expenditures: Background and Evaluation Criteria and 
Questions, [hyperlink, http://www.gao.gov/products/GAO-13-167SP] 
(Washington, D.C.: Nov. 29, 2012). 

[17] GAO, Government Performance and Accountability: Tax Expenditures 
Represent a Substantial Federal Commitment and Need to Be Reexamined, 
[hyperlink, http://www.gao.gov/products/GAO-05-690] (Washington, D.C.: 
Sept. 23, 2005), and Tax Policy: Tax Expenditures Deserve More 
Scrutiny, [hyperlink, http://www.gao.gov/products/GAO/GGD/AIMD-94-122] 
(Washington, D.C.: June 3, 1994). 

[18] Pub. L. No. 111-352, 124 Stat. 3866 (Jan. 4, 2011). 

[19] GAO, Managing for Results: Opportunities for Congress to Address 
Government Performance Issues, [hyperlink, 
http://www.gao.gov/products/GAO-12-215R] (Washington, D.C.: Dec. 9, 
2011) and Managing for Results: GPRA Modernization Act Implementation 
Provides Important Opportunities to Address Government Challenges, 
[hyperlink, http://www.gao.gov/products/GAO-11-617T] (Washington, 
D.C.: May 10, 2011). 

[20] The number of tax expenditures reflects all provisions reported 
by Treasury, including those enacted but effective for future fiscal 
years. Some provisions listed by Treasury as one tax expenditure may 
actually include multiple tax provisions aggregated together. In 
addition, fluctuations in the trend lines from year-to-year may 
reflect changes in Treasury's methodology rather than changes in tax 
law enacted. 

[21] In addition, the alcohol fuel mixture credit also results in a 
reduction in excise tax receipts of $6.52 billion in 2011 according to 
Treasury's estimates. 

[22] According to Treasury officials, two of the corporate-only tax 
expenditures are limited to C corporations or those treated as C 
corporations by the Internal Revenue Code. These tax expenditures 
include the graduated corporation income tax rate, which applies only 
to corporations, and the credit for holders of zone academy bonds, 
which is available only to certain types of corporations investing in 
school construction. See 26 U.S.C. §§ 11, 54E, 1397E. Four additional 
tax expenditures are restricted to corporations even though the 
recipients may not be organized as corporations. The Internal Revenue 
Code requires insurance companies to file as C corporations for 
federal corporate income tax purposes irrespective of their legal form 
of organization (sec. 7701(a)(3)).Treasury also assumes for two tax 
expenditures that all organizations claiming the tax expenditure would 
file their tax returns under the federal corporate income tax system 
if the tax expenditure was removed. The remaining 16 tax expenditures 
could be used by individuals and "pass-through" entities. Treasury 
estimated that these tax expenditures had 2011 revenue losses only for 
corporations or that the estimated individual revenue losses were less 
than Treasury's de minimus reporting threshold of $5 million. 

[23] For the number of recipients claiming tax expenditures, tax 
exemption data are fiscal year 2010 data while tax credit and 
deduction data is 2010 corporate tax year data. For corporate tax 
expenditures, the corporations may not be the sole or ultimate 
beneficiaries intended to benefit from the special tax treatment. For 
example, in addition to the manufacturers directly claiming the credit 
for energy efficient appliances, consumers would benefit from any 
increased supply and lower prices for energy efficient appliances. 

[24] GAO, Renewable Energy: Federal Agencies Implement Hundreds of 
Initiatives, [hyperlink, http://www.gao.gov/products/GAO-12-260] 
(Washington, D.C.: Feb. 27, 2012). 

[25] Although the tax expenditure concept can also be applied to other 
kinds of taxes, such as excise taxes, this report only covers tax 
expenditures for the federal income tax system. Tax expenditures may 
be available to corporate and individual taxpayers, including other 
types of business entities other than corporations. Treasury estimates 
the portion of revenue losses associated with corporate or individual 
taxpayers for each tax expenditure in its list. According to 
Treasury's estimates, some tax expenditures may be used by only 
corporate taxpayers and some by only individual taxpayers while other 
tax expenditures may be used by both corporate and individual 
taxpayers. 

[26] The number of tax expenditures reflects all provisions reported 
by Treasury, including those enacted but effective for future fiscal 
years. Some provisions listed by Treasury as one tax expenditure may 
actually include multiple tax provisions aggregated together. In 
addition, fluctuations in the trend lines from year-to-year may 
reflect changes in Treasury's methodology rather than changes in tax 
law enacted. See [hyperlink, http://www.gao.gov/products/GAO-05-690]. 

[27] For further discussion on summing of tax expenditure estimates 
and examples, see GAO, Government Performance and Accountability: Tax 
Expenditures Represent a Substantial Federal Commitment and Need to Be 
Reexamined, [hyperlink, http://www.gao.gov/products/GAO-05-690] 
(Washington, D.C.: Sept. 23, 2005). 

[28] In the fiscal year 2013 Analytical Perspectives, Treasury listed 
173 tax expenditures. Three tax expenditures listed by Treasury did 
not have estimates for corporations or individuals in 2011 but did 
have estimates in future fiscal years and three tax expenditures had 
no estimates for corporations or individuals in any of the estimated 
fiscal years. Some of the tax expenditures identified as having 
corporate revenue losses in 2011 may have expired at the end of 
calendar year 2011 or 2012. 

[29] Federal tax information--tax returns and return information--are 
kept confidential under section 6103 of the Internal Revenue Code 
except as specifically authorized by Congress. Section 6103 specifies 
what federal tax information can be disclosed, to whom, and for what 
purposes. 

[30] When the number of taxpayers claiming a tax expenditure is small, 
even with a large sample such as the IRS SOI corporate sample, 
estimates for small subpopulations like these often have large 
confidence intervals. For three of the corporate-only tax 
expenditures, the estimated number of corporations claiming the 
expenditure was less than 17. 

[31] U.S. Congress, Senate Committee on the Budget, Tax Expenditures: 
Compendium of Background Material on Individual Provisions, S. Prt. 
111-58. Prepared by CRS (Washington, D.C.: December 2010). 

[32] We used one prior GAO report as an example of the historical 
rationale of one corporate tax expenditure. See GAO, Financial 
Institutions: Issues Regarding the Tax-Exempt Status of Credit Unions, 
[hyperlink, http://www.gao.gov/products/GAO-06-220T] (Washington, D.C: 
Nov. 3. 2005). 

[33] Office of Management and Budget, Analytical Perspectives, Budget 
of the United States Government, Fiscal Year 2013, (Washington, D.C.: 
2012) and U.S. Congress, Senate Committee on the Budget, Tax 
Expenditures: Compendium of Background Material on Individual 
Provisions, S. Prt. 111-58. Prepared by CRS (Washington, D.C.: 
December 2010). Treasury's and CRS's tax expenditure lists were 
generally similar as CRS's relies on upon the Joint Committee on 
Taxation's tax expenditure list. 

[34] We obtained data from IRS for the tax expenditures identified as 
related, from the Department of Energy for the Integrated 
Biorefineries Program, and for the standards and regulations 
identified as related from the Department of Energy and the 
Environmental Protection Agency. 

[End of section] 

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