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Partial Loss Refundability: How Are Corporate Tax Losses Used?

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  • Cooper, Michael
  • Knittel, Matthew

Abstract

Using tax return data for1993–2003, we measure how US corporations use tax losses over time. For firms included in our dataset, we find that: (1) approximately 50–60 percent of tax losses are used over a ten–year window as a carryback refund or loss carryforward deduction; (2) approximately 10–20 percent remain to be used; and (3) approximately 25–30 percent are never used. Moreover, many tax losses are used only after a substantial delay. Hence, we find that certain firms and industries incur a significant penalty from the partial loss refund regime due to the erosion in the real value of their tax loss.

Suggested Citation

  • Cooper, Michael & Knittel, Matthew, 2006. "Partial Loss Refundability: How Are Corporate Tax Losses Used?," National Tax Journal, National Tax Association, vol. 59(3), pages 651-663, September.
  • Handle: RePEc:ntj:journl:v:59:y:2006:i:3:p:651-63
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    Citations

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    Cited by:

    1. John Creedy & Norman Gemmell, 2010. "Behavioural responses to corporate profit taxation," Hacienda Pública Española, IEF, vol. 193(2), pages 109-130, June.
    2. Daniel Dreßler & Michael Overesch, 2013. "Investment impact of tax loss treatment—empirical insights from a panel of multinationals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(3), pages 513-543, June.
    3. Mardan, Mohammed & Stimmelmayr, Michael, 2018. "Tax revenue losses through cross-border loss offset: An insurmountable hurdle for formula apportionment?," European Economic Review, Elsevier, vol. 102(C), pages 188-210.
    4. Casey B. Mulligan, 2015. "The New Full-Time Employment Taxes," Tax Policy and the Economy, University of Chicago Press, vol. 29(1), pages 89-132.
    5. Dwenger, Nadja & Steiner, Viktor, 2012. "Profit Taxation and the Elasticity of the Corporate Income Tax Base: Evidence From German Corporate Tax Return Data," National Tax Journal, National Tax Association, vol. 65(1), pages 118-150, March.
    6. Alexandre Laurin, 2009. "Cleaning Up the Books: A Proposal for Revamping Corporate Group Taxation in Canada," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 284, March.
    7. Edgerton, Jesse, 2010. "Investment incentives and corporate tax asymmetries," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 936-952, December.
    8. Rosanne Altshuler & Alan J. Auerbach & Michael Cooper & Matthew Knittel, 2009. "Understanding U.S. Corporate Tax Losses," NBER Chapters,in: Tax Policy and the Economy, Volume 23, pages 73-122 National Bureau of Economic Research, Inc.
    9. Marko Köthenbürger & Mohammed Mardan & Michael Stimmelmayr, 2018. "Profit Shifting and Investment Effects: The Implications of Zero-Taxable Profits," CESifo Working Paper Series 6895, CESifo Group Munich.
    10. Nadja Dwenger & Viktor Steiner, 2008. "Effective Profit Taxation and the Elasticity of the Corporate Income Tax Base: Evidence from German Corporate Tax Return Data," Discussion Papers of DIW Berlin 829, DIW Berlin, German Institute for Economic Research.
    11. Masanori Orihara, "undated". "Corporate tax asymmetries and R&D: Evidence from a tax reform for business groups in Japan," Discussion papers ron273, Policy Research Institute, Ministry of Finance Japan.
    12. Mehrmann, Annika & Sureth-Sloane, Caren, 2017. "Tax loss offset restrictions and biased perception of risky investments," arqus Discussion Papers in Quantitative Tax Research 222, arqus - Arbeitskreis Quantitative Steuerlehre.
    13. John Creedy & Norman Gemmell, 2011. "Corporation tax asymmetries: effective tax rates and profit shifting," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(4), pages 422-435, August.
    14. Haufler, Andreas & Norbäck, Pehr-Johan & Persson, Lars, 2014. "Entrepreneurial innovations and taxation," Journal of Public Economics, Elsevier, vol. 113(C), pages 13-31.
    15. Eric Zwick, 2018. "The Costs of Corporate Tax Complexity," NBER Working Papers 24382, National Bureau of Economic Research, Inc.
    16. Cooper, Michael G. & Knittel, Matthew J, 2010. "The Implications of Tax Asymmetry for U.S. Corporations," National Tax Journal, National Tax Association, vol. 63(1), pages 33-61, March.
    17. Nadja Dwenger & Viktor Steiner, 2014. "Financial leverage and corporate taxation: evidence from German corporate tax return data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 1-28, February.
    18. Wagner, Julia, 2015. "EBITDA-Vortrag - cui bono? Eine Gesetzesevaluation auf Basis einer Mikrosimulation," Discussion Papers 2015/31, Free University Berlin, School of Business & Economics.
    19. Mehrmann, Annika & Schneider, Georg & Sureth, Caren, 2012. "Asymmetric taxation of profits and losses and its influence on investment timing: Paradoxical effects of tax increases," arqus Discussion Papers in Quantitative Tax Research 134, arqus - Arbeitskreis Quantitative Steuerlehre.
    20. Lina Cui, 2013. "A Markov Chain Analysis on the Impact of German Tax Loss Offset Restrictions," Economic Papers, The Economic Society of Australia, vol. 32(1), pages 122-134, March.
    21. Masanori Orihara, "undated". "Tax loss carryforwards and corporate behavior," Discussion papers ron271, Policy Research Institute, Ministry of Finance Japan.
    22. Walch, Florian & Dwenger, Nadja, 2011. "Tax Losses and Firm Investment: Evidence from Tax Statistics," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48699, Verein für Socialpolitik / German Economic Association.
    23. repec:eee:spacre:v:17:y:2014:i:1:p:17-29 is not listed on IDEAS

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