Pursuant to a congressional request, GAO provided information on corporate net operating losses (NOL), focusing on: (1) corporate NOL carryovers from past years; (2) Internal Revenue Service (IRS) taxpayer instructions on how to use NOL carryovers; (3) an IRS proposal to modify corporate tax returns to include the reporting of NOL carryover amounts; and (4) IRS enforcement efforts on NOL and net operating loss deduction (NOLD) reporting by corporations.

GAO found that: (1) small and large corporations reported at least $245.7 billion in NOL carryovers by 1989 and most of the corporations erroneously reported NOL carryover as NOLD; (2) the wholesale and retail trade, construction, and manufacturing industries have the lowest percentage of NOL carryover and the mining, finance, insurance, real estate, agriculture, forestry, and fishing industries have the highest NOL carryover; (3) foreign and domestic corporations have similar percentages of NOL carryover to total receipts; (4) corporations erroneously report NOL carryover as NOLD because reporting instructions are not clear; (5) IRS plans to clarify 1993 NOLD instructions; (6) IRS has proposed that corporations report their NOL carryover on a separate line on their tax returns; (7) new NOL data would improve revenue estimates on proposed changes to corporate tax law, voluntary compliance among corporations, and IRS checks for NOLD compliance; (8) IRS generally audits a small percentage of corporate returns that report NOL because it believes they have little revenue potential; and (9) IRS audits of small companies reporting NOL in 1987 could have generated $2 billion in additional tax revenue.