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  1. #1
    Living the dream The Real Bingo's Avatar
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    Ford may not pay taxes until end of decade

    Ford Accounting Move May Add $13 Billion to Profit, Expert Says - Businessweek

    When Ford removes the allowance from its balance sheet, it will record the accounting move as a “special item for the quarter” to avoid “a large negative effective tax rate,” it said in its filing. Without the allowance, The Dearborn, Michigan-based automaker said it would “experience more normal effective tax rates, approaching the U.S. statutory rate of 35 percent.”

    Ford, which hasn’t paid U.S. taxes since 2005, may not pay federal taxes until the end of the decade because it still would have tax-loss benefits on its books from $31.4 billion in operating losses sustained from 2005 to 2009, said Brian Johnson, a Chicago-based analyst with Barclays Capital Management.
    I don't know what to think. I understand spreading out losses so that you don't get soaked in taxes once a profit is turned, but not paying taxes on a steady stream of profits doesn't seem right.

    It's another one of those loopholes that allows businesses to shift money and use smoke and mirrors to do whatever they please. If this doesn't demonstrate a need for a new, simpler tax code, I don't know what does.

    But potential good news for Ford:

    Ford Motor Co., after earning $9.3 billion in the last two years, may make an accounting change this year to reflect confidence in its recovery, a move one tax expert said could boost its 2011 profit as much as $13 billion.

    Ford in the second half may eliminate from its balance sheet a valuation allowance held against deferred tax assets, it said in a federal filing this week. The reserve was created in 2006 as Ford began four years of operating losses. Eliminating the allowance may add $10 billion to $13 billion to Ford’s net income this year, said Robert Willens, president of Robert Willens LLC of New York, a corporate tax specialist.

    “This is a very positive statement from Ford,” Willens said. “If you take the radical step of eliminating your valuation allowance, then you’ve developed a high degree of confidence in your future profit-making ability.”
    It's still just an accounting trick, so we'll be taking future earnings reports with a grain of salt...
    Last edited by The Real Bingo; March 4th, 2011 at 10:53 AM.

  2. #2
    Fact Checker Gomer's Avatar
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    Quote Originally Posted by voogru View Post
    What if things are doing great now, and then they crash into a wall after paying billions in taxes and they need another bailout?
    Ford might need another bailout? When did they get their first one?

  3. #3
    Fact Checker Gomer's Avatar
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    Quote Originally Posted by voogru View Post
    So they didn't get a bailout is what you're saying?

    What does maroon mean in the voogru color coding scheme? Is red broken?
    Last edited by Gomer; March 4th, 2011 at 01:00 PM.

  4. #4
    Ultimate Member Chuckiechan's Avatar
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    Here's the deal in simple terms.

    Ford expected to incur operating losses as the economy headed into recession. By estimating the amount of losses, they can estimate the amount of taxes they may or may not pay. They saw it coming but were still profitable at the time, so put away extra money to get them thourgh the recession.

    When losses occur, they can be applied (balanced) against profits in later years.

    So one can say it is a "credit" and therefor is money set aside for an assigned use, if necessary. (future taxes)

    The tax system lets companies do this to protect themselves. They are able to retain it as an asset and not treat it as "profit", and pay taxes on it.

    When protection is not needed, it goes back into the revenue stream as if they make a huge sale with no cost. They will usually spread it over "X" years depending on IRS rules at the time it was "set aside".

    This is an illustration of how companies manage their capital: Where do you think the 13 billion in taxes not paid is going?

    Subsidies are treated a "special" projects with all kinds of R & D loopholes. That's why politicians love them. You can have your buddy in Chicago make $5 gauges for $ 500 apiece and hide it in the R & D budgets.

    Usually they "Stand alone" on the balance sheet.
    Last edited by Chuckiechan; March 4th, 2011 at 01:18 PM.
    Government is a disease pretending to be a cure!

  5. #5
    zen
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    Ultimate Member zen's Avatar
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    Quote Originally Posted by Gomer View Post
    So they didn't get a bailout is what you're saying?

    What does maroon mean in the voogru color coding scheme? Is red broken?

  6. #6
    Indispensable Member surreal's Avatar
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    Quote Originally Posted by voogru View Post

    Trying to use something not so bright.
    "Sometimes life is just what we make it."

  7. #7
    Ultimate Member Chuckiechan's Avatar
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    Government is a disease pretending to be a cure!

  8. #8
    Ultimate Member thephilosophizer's Avatar
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    Well accounting nuances aside, sure Ford received benefits from government programs. But these programs were specifically designed to keep manufacturing in the US. You think the Japanese and German auto makers don't get benefits at home?
    The automotive market is a tricking thing. The capital cost of participate is exorbitant, so much so that it is essentially impossible for any new competition to enter the market. Auto manufacturing represents one of the largest industrial markets in the world, and each is of much too high a value to their respective countries to not be supported by them (the cost of losing a major manufacturer, and the resultant gain in market by an assumed foreign. That's why we only drive cars from countries with wealthy governments.
    Most importantly though, Ford never declared bankruptcy, and was never stewarded by the federal government. Their ownership has always been private.
    Reason obeys itself; and ignorance does whatever is dictated to it.
    -Thomas Paine

  9. #9
    OAP Theophylact's Avatar
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    So what's the surprise? Right-wingers often complain that the US corporate income tax rate is the highest in the industrialized world. Mebbe so; but companies simply don't pay taxes at that rate, because they have a thousand ways around it. Ford is only one example.
    The optimist proclaims that we live in the best of all possible worlds; and the pessimist fears this is true. -- James Branch Cabell

  10. #10
    The Jiggawatts, Marty! tony_j15's Avatar
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    Remember corporations are not real, they are just pieces of paper.
    Unfortunately, court history says otherwise.
    All 1.21 of them.

  11. #11
    The Jiggawatts, Marty! tony_j15's Avatar
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    If only simplistic answers could solve all of the world's problems.
    All 1.21 of them.

  12. #12
    Living the dream The Real Bingo's Avatar
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    Quote Originally Posted by voogru View Post
    Here, try this at home.

    Have a corporation.

    Remove all of the meat popsicles (people).

    Can it do anything?

    Nope.
    What "people"? Remove all the people and we're not having this conversation because we're not here.

    You can incorporate for any number of reasons; you don't need to actually be a business to do so.

    For instance, it makes sense to incorporate if you own certain types of firearms that are difficult to transfer. If you have them registered to the corporation, it is much easier to transfer them.

    Legally, a corporation is a person.

  13. #13
    Living the dream The Real Bingo's Avatar
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    Quote Originally Posted by Theophylact View Post
    So what's the surprise? Right-wingers often complain that the US corporate income tax rate is the highest in the industrialized world. Mebbe so; but companies simply don't pay taxes at that rate, because they have a thousand ways around it. Ford is only one example.
    So this begs the question of what you think is better (and these are arbitrary numbers used for demonstration purposes): A nominal rate of 30%, but through loopholes, only an effective rate of 20%; or a 20% nominal and effective rate due to the absence of loopholes?

  14. #14
    Fact Checker Gomer's Avatar
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    Quote Originally Posted by The Real Bingo View Post
    So this begs the question of what you think is better (and these are arbitrary numbers used for demonstration purposes): A nominal rate of 30%, but through loopholes, only an effective rate of 20%; or a 20% nominal and effective rate due to the absence of loopholes?
    As long as corps are people... and people can hire lobbyists... there will be loopholes.

    No loopholes would be a perfect world.

  15. #15
    Living the dream The Real Bingo's Avatar
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    There will be loopholes because it benefits certain people to make them. Accountants and lawyers love loopholes, and who do you think is writing the tax code?

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