CHAPTER 13: CORPORATE PROFITS
(Updated: December 2023)
Definitions and Concepts
Recording in the NIPAs
Overview of Source Data and Estimating Methods
Annual (except most-recent-year) estimates
Most-recent-year estimates
Current quarterly estimates
Table 13.A—Summary of Methodology for Corporate Profits
Technical Note: Adjustments to IRS Tax Return Data
Appendix: Domestic Gross Corporate Value Added and Related Measures
Corporate profits represents the portion of the total income earned from current
production that is accounted for by U.S. corporations. The estimates of corporate profits
are an integral part of the national income and product accounts (NIPAs), a set of
accounts prepared by the Bureau of Economic Analysis (BEA) that provides a logical and
consistent framework for presenting statistics on U.S. economic activity (see “Chapter 2:
Fundamental Concepts”).
Corporate profits is one of the most closely watched U.S. economic indicators.
Profitability provides a summary measure of corporate financial health and thus serves as
an essential indicator of economic performance. Profits are a source of retained earnings,
providing much of the funding for capital investments that raise productive capacity. The
estimates of profits and of related measures may also be used to evaluate the effects on
corporations of changes in policy or in economic conditions.
Profits are also frequently used in measuring the rate of return on investment and
the relationship between earnings and equity valuation. For example, the estimates of
corporate profits before and after tax, along with estimates of corporate net value added,
are used in preparing BEA’s annual measures of aggregate rates of returns for domestic
nonfinancial corporations.
1
BEA’s featured measure of corporate profits—profits from current production—
provides a comprehensive and consistent economic measure of the income earned by all
U.S. corporations. As such, it is unaffected by changes in tax laws, and it is adjusted for
nonreported and misreported income. It excludes dividend income, capital gains and
losses, and other financial flows and adjustments, such as deduction for “bad debt.” Thus,
the NIPA measure of profits is a particularly useful analytical measure of the health of
the corporate sector. For example, in contrast to other popular measures of corporate
1
See Sarah Osborne and Bonnie A. Retus, “Returns for Domestic Nonfinancial Business,” Survey of
Current Business 98 (December 2018).
CHAPTER 13: CORPORATE PROFITS
13-2
profits, the NIPA measure did not show the large run-up in profits during the late 1990s
that was primarily attributable to capital gains.
In addition, BEA prepares associated measures of payments arising from
corporate profits, including taxes and dividends. Taxes on corporate income consists of
taxes on income paid to government and to the rest of the world. Corporate taxes are an
important source of funding for federal and for state and local government operations.
Net dividend payments consists of payments to shareholders by U.S. corporations.
Corporate dividends paid to shareholders measures investment returns to them in the
form of current income, including dividends paid to persons as a component of the NIPA
measure of personal income.
Definitions and Concepts
Corporate profits measures the income, before deducting income taxes, of
organizations treated as corporations in the NIPAs. These organizations consist of all
entities required to file federal corporate tax returns, including mutual financial
institutions and cooperatives subject to federal income tax; nonprofit organizations that
primarily serve business; Federal Reserve banks; and federally sponsored credit agencies.
Reflecting the concepts of national economic accounting, income in the NIPAs is defined
as that arising from current production. This income is measured as receipts less expenses
as defined in federal tax law, but with several important differences.
2
Table 13.1 shows the types of transactions that are included in, and excluded
from, corporate profits.
Table 13.1—Content of Corporate Profits
Category of transaction
Comments
Corporate profits before tax
Includes all U.S. corporations, including private
corporations and S corporations.
Includes other organizations that do not file federal
corporate tax returns—such as certain mutual financial
institutions and cooperatives, nonprofits that primarily
serve business, Federal Reserve banks, and federally
sponsored credit agencies.
Receipts exclude gains, net of losses, from the sale of
property.
Receipts exclude dividends received.
Expenses include distributions to shareholders of
regulated investment companies that represent interest
income, which are classified as interest payments in the
NIPAs.
2
The NIPA measures of corporate profits are closely related to the measures for corporations in the System
of National Accounts (SNA). However, the SNA definition has a broader definition of the corporate sector
that includes most federal government and state and local government enterprises and private entities such
as limited liability partnerships and nonprofit institutions that are primarily engaged in market production.
(See Stephanie H. McCulla, Karin E. Moses, and Brent R. Moulton, “The National Income and Product
Accounts and the System of National Accounts 2008: Comparison and Research Plans,” Survey 95 (June
2015): 1-17.)
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Excludes the cost of trading and issuing corporate
securities.
Expenses exclude deductions for bad debt, depletion,
and state and local taxes on corporate income.
Expenses exclude expensing for, and include
depreciation of, intangible amortization, mining
exploration, shafts, and wells, and intellectual property
products.
Inventory valuation adjustment
Inventory withdrawals are valued at current cost.
Capital consumption adjustment
Depreciation is valued at current cost.
Most businesses report profits on both a financial-accounting basis and a tax-
accounting basis.
3
Both financial accounting and tax accounting calculate profits as the
difference between receipts and expenses; however, they differ in the definitions of some
receipts and expenses, in the timing of when the receipts and expenses are recorded, and
in the purposes for which the information is prepared. Financial-accounting measures,
which reflect “generally accepted accounting principles,” underlie the reports to
stockholders, to lenders, and to government regulatory agencies; tax-accounting measures
underlie corporate income tax returns. The Internal Revenue Service (IRS) has tabulated
an information return (the M-3) that reconciles various items (such as employee stock
options) reported on financial reports with the same items reported on most corporate tax
returns, beginning with 2005. The annual and quarterly financial reports prepared by
individual companies provide the basis for another widely followed set of indicators of
corporate profits—the Standard and Poor’s (S&P) 500 measures of reported earnings,
operating earnings, and earnings per share, which reflect the aggregate earnings of the
500 corporations that compose the S&P stock index.
4
When available, BEA uses data collected on a tax-accounting basis as the primary
source of information on corporate profits. These data are based on well-specified,
consistent accounting definitions that, in general, more closely parallel NIPA concepts
and definitions. For example, in financial accounting, corporations sometimes record the
value of extraordinary losses before they actually incur the expenses associated with the
losses. Financial accounting also allows some flexibility in the way definitions are
applied by corporations—for example, in the selection of asset service lives and in the
valuation of liabilities. In addition, tax-accounting tabulations are comprehensive,
covering all incorporated businesses—both publicly traded and privately held—and all
industries, while financial-accounting tabulations cover a subset of the corporate
universe. However, financial-accounting information is more timely than tax-return data,
so it is used by BEA to derive the estimates for the most recent year and for the current
quarters. Neither set of accounting data is entirely suitable for implementing the NIPA
concept of profits from current production. Consequently, BEA’s procedure for
3
For a general discussion of the NIPA accounting framework and of the underlying accounting principles,
see the section “Accounting Framework,” in Chapter 2. For an in-depth discussion, see “
An Introduction to
National Economic Accounting,” Methodology Paper No. 1, September 2007 on BEA’s website at
www.bea.gov.
4
The NIPA and S&P measures of profits differ significantly in purpose, coverage, source data, definitions,
and methodologies; see Andrew W. Hodge, “
BEA Briefing: Comparing NIPA Profits With S&P 500
Profits,” Survey 91 (March 2011): 22–27.
CHAPTER 13: CORPORATE PROFITS
13-4
estimating NIPA corporate profits mainly consists of adjusting, incorporating, and
supplementing these data.
5
Profits from current production, the featured measure of corporate profits in the
NIPAs, is derived as the sum of profits before tax (PBT) and of two adjustments—the
inventory valuation adjustment (IVA) and the capital consumption adjustment (CCAdj).
PBT—sometimes referred to as “book profits”—reflects corporate income
regardless of any redistribution of income made through taxes. The PBT estimates are
primarily based on tax-return information provided by the IRS in Statistics of Income:
Corporation Income Tax Returns, which is then adjusted to conform to BEA coverage
and definitions.
6
PBT is distributed to government as taxes on corporate income and to
shareholders as dividends, or is retained as undistributed profits. The estimates of PBT
are prior to the IVA and CCAdj (which are discussed in the following two paragraphs),
so PBT reflects the charges used in business tax accounting for inventory withdrawals
and for depreciation.
As prices change, businesses that value inventory withdrawals at original
acquisition (historical) costs may realize inventory profits or losses. In the NIPAs, these
gains or losses that result from holding goods in inventory are not considered income
from current production and thus are removed from business income. The IVA converts
the business-accounting valuation of withdrawals from inventory, which is based on a
mixture of historical and current costs, to a current-cost basis by removing the capital-
gain-like or the capital-loss-like element that results from valuing these withdrawals at
prices of earlier periods.
7
Depreciation measured on a business-accounting basis must be adjusted to reflect
consistent economic-accounting measures that are valued at current-replacement cost.
The CCAdj is a two-part adjustment that (1) converts valuations of depreciation that are
based on a mixture of service lives and depreciation patterns specified in the tax code to
valuations that are based on uniform service lives and empirically based depreciation
patterns; and (2) like the IVA, converts the measures of depreciation to a current-cost
basis by removing from profits the capital-gain-like or capital-loss-like element that
arises from valuing the depreciation of fixed assets at the prices of earlier periods.
8
5
See the section “Overview of Source Data and Estimating Procedures.” In addition, for an in-depth
discussion of estimation issues regarding corporate profits, see Dylan G. Rassier, “
The Role of Profits and
Income in the National Accounts,” Survey 91 (February 2012): 8–22.
6
For more information, see “Business Tax Statistics, Corporations,” at www.irs.gov/statistics/soi-tax-stats-
corporation-tax-statistics.
7
For more information, see “Chapter 7: Change in Private Inventories,” 7–4.
8
After the September 11, 2001, attacks on the World Trade Center and the Pentagon and the subsequent
perceived weakness in the economy, legislation was passed to stimulate business investment by temporarily
modifying tax-based depreciation rules. As part of the Job Creation and Worker Assistance Act of 2002,
businesses were permitted to depreciate a “bonus” amount during the first year, over and above that
allowed under traditional tax accounting rules. Because total depreciation cannot exceed the amount of the
investment, the amount of depreciation remaining to be taken in future years was reduced. Hence,
depreciation was raised during the “bonus” span and lowered thereafter, and because depreciation is an
CHAPTER 13: CORPORATE PROFITS
13-5
The composition of profits from current production—that is, corporate profits
with IVA, and CCAdj—is illustrated below.
2017 estimate
(billions of
dollars)
Corporate profits with IVA and CCAdj
2,225.2
PBT
2,295.1
IVA
-47.6
CCAdj
-22.3
For consistent accounting at historical cost
140.9
For current-cost valuation
-163.2
The NIPAs include tabulations for both “national” profits and “domestic” profits.
9
The profits component of national income includes “profits originating in the rest of the
world.” This measure is calculated as receipts by all U.S. residents, including both
corporations and persons, of dividends from foreign corporations, and, for U.S.
corporations, their share of the reinvested earnings of their incorporated foreign affiliates,
and the earnings of unincorporated foreign affiliates, net of corresponding payments. The
profits component of domestic income excludes the income earned abroad by U.S.
corporations and includes the income earned in the United States by foreign-owned
corporations. These relationships are illustrated below.
expense in calculating profits, PBT was understated during the “bonus” span and overstated thereafter. A
number of subsequent economic stimulus acts also included provisions for “bonus” depreciation; therefore,
the effects of tax acts of later years are net of offsetting bonus depreciation that was claimed in previous
years.
Profits from current production (PBT with IVA and CCAdj) was not affected by the acts, because it does
not depend on the depreciation-accounting practices used for federal income tax purposes; instead, this
measure of profits is based on an estimate of the value of fixed capital actually used up in the production
process. However, because the acts reduced tax liability, profits from current production on an after-tax
basis was adjusted by the net effect of the tax acts. Because the acts affect tax depreciation, the CCAdj was
also adjusted by the same amount. BEA estimates of the adjustment are based on data from the Office of
Tax Analysis (OTA) of the U.S. Department of the Treasury and on other source data (for more
information, see OTA’s working paper “
Corporate Response To Accelerated Tax Depreciation: Bonus
Depreciation For Tax Years 2002-2004”).
9
For a general discussion of domestic and national measures in the NIPAs, see the section “Geographic
coverage” in Chapter 2
.
2017 estimate
(billions of dollars)
Corporate profits with IVA and CCAdj
2,225.2
Less: Rest of the world
498.9
Receipts from the rest of the world
804.1
Less: Payments to the rest of the world
305.2
Corporate profits with IVA and CCAdj,
domestic industries
1,726.3
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Other principal profits measures that are presented in the NIPAs (see NIPA table
1.12) are defined as follows:
Taxes on corporate income consists of taxes paid on corporate earnings to federal,
state, and local governments and to foreign governments. These earnings include capital
gains and other income excluded from PBT. The taxes are measured on an accrual basis,
net of applicable tax credits.
Profits after tax with IVA and CCAdj is equal to corporate profits with IVA and
CCAdj less taxes on corporate income. It provides an after-tax measure of profits from
current production.
Net dividends consists of payments in cash or other assets, excluding the
corporation's own stock, made by corporations located in the United States and abroad to
stockholders who are U.S. residents. The payments are netted against dividends received
by U.S. corporations, thereby providing a measure of the dividends paid by U.S.
corporations to other sectors.
Undistributed corporate profits with IVA and CCAdj is equal to corporate profits
with IVA and CCAdj less taxes on corporate income and less net dividends. It measures
corporate saving from profits.
Net cash flow with IVA is equal to undistributed corporate profits with IVA and
CCAdj plus consumption of corporate fixed capital less capital transfers paid (net). It is a
profits-related measure of internal funds available for investment.
Consumption of fixed capital (CFC) is the economic charge for the use of fixed
capital. It is defined as the decline in the value of the stock of assets due to wear and tear,
obsolescence, aging, and accidental damage except that caused by a catastrophic event.
10
Capital transfers paid (net) is the net measure of unrequited transfers associated
with the acquisition or disposal of assets between the corporate sector and other sectors.
Corporate profits with IVA is defined in the same way as corporate profits with
IVA and CCAdj, except corporate profits with IVA reflects the depreciation-accounting
practices used for federal income tax returns. Profits by industry is shown on this basis
because estimates of the CCAdj by industry are not available.
10
In the 2009 comprehensive update, BEA introduced a new treatment of major disasters (those in which
either the associated property losses or the insurance payouts exceed 0.1 percent of GDP) that records them
as “changes in the volume of assets” rather than as CFC; see Eugene P. Seskin and Shelly Smith, “
Preview
of the 2009 Comprehensive Revision of the NIPAs: Changes in Definitions and Presentations,” Survey 89
(March 2009): 11–15.
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13-7
Profits after tax without IVA and CCAdj is equal to PBT less taxes on corporate
income. It consists of net dividends and undistributed corporate profits. This measure is
often used in comparisons with the S&P measures of reported earnings.
Undistributed corporate profits without IVA and CCAdj is equal to PBT less taxes
on corporate income and less net dividends. It measures corporate saving from book
profits.
In addition, BEA prepares estimates of gross corporate value added (see NIPA
table 1.14), which is defined as the total value of all goods and services produced by the
corporate sector (gross output) less the value of those goods and services that are used up
in production (total intermediate inputs). For a discussion of the derivation of gross
corporate value added and of related measures, see the appendix to this chapter.
Recording in the NIPAs
As described in Chapter 2, the NIPAs can be viewed as aggregations of accounts
belonging to individual transactors in the economy. In the seven summary accounts of the
NIPAs, corporate profits with IVA and CCAdj appears in the Private Enterprise Account
(account 2), and undistributed corporate profits with IVA and CCAdj appears in the
Domestic Capital Account (account 6). Taxes on corporate income appears in the Private
Enterprise Account, the Government Receipts and Expenditures Account (account 4), and
the Foreign Transactions Current Account (account 5). Corporate dividends appears in
the Private Enterprise Income Account, the Personal Income and Outlay Account
(account 3), the Government Receipts and Expenditures Account, and the Foreign
Transactions Current Account.
The NIPAs include a substantial number of tables that present aggregate and
detailed current-dollar estimates of corporate profits. In most of the NIPA tables, the
totals are shown on a national basis. In tables showing industry detail, profits on a
national basis are shown as the total of profits for domestic industries and for the “rest-of-
the-world” industry. The NIPA tables that present estimates of seasonally adjusted and
not seasonally adjusted corporate profits are identified in table 13.2 below.
CHAPTER 13: CORPORATE PROFITS
13-8
Table 13.2--Measures of Corporate Profits in NIPA Tables
Profits measures National total Rest of the world
Domestic
Total
Financial
1
Nonfinancial
Aggregate
Industry
detail
Current production measures:
Corporate profits with IVA & CCAdj
1.7.5, 1.12, 1.16, 6.16
NA
1.10, 1.13,
1.14, 8.2
NA
NA
1.14
Less: Taxes on corporate income
2
1.10, 1.12, 1.16, 3.1, 6.18,
7.16
6.18
1.10, 1.14,
6.18, 8.2
6.18
NA
1.14
Equals: Profits after tax with IVA & CCAdj
1.12, 1.16
NA
1.10, 1.14
NA
NA
1.14
Less: Net dividends
3
1.12, 1.16, 6.20, 7.10, 7.16
6.20, 7.10, 7.16
1.10, 1.14,
7.10, 8.2
6.20
7.10
1.14, 7.10
Dividends paid
7.10
1.16, 4.1, 7.10
7.10
NA
7.10
7.10
Less: Dividends received
7.10
1.16, 4.1, 7.10
7.10
NA
7.10
7.10
Equals: Undistributed profits with IVA &
CCAdj
1.12, 1.16, 5.1
NA
1.10, 1.14, 8.2.
NA
NA
1.14
Plus: Consumption of fixed capital
1.12, 7.5
NA
1.14, 7.5
NA
7.5
7.5, 1.14
Less: Capital transfers paid (net)
5.11, 1.12
NA
NA
NA
NA
NA
Equals: Net cash flow with IVA
1.12
NA
NA
NA
NA
NA
Derivation from "book profits":
Profits before tax (PBT) or "book profits"
1.12, 6.17, 7.16
1.13, 6.17
1.14, 6.17
6.17
NA
1.14
Plus: IVA
1.12, 5.1, 6.14
NA
1.14, 6.14
6.14
NA
1.14
Equals: Corporate profits with IVA
1.12, 6.16
6.16
6.16
6.16
6.16
6.16
Plus: CCAdj
1.12, 1.13, 5.1, 7.13
NA
1.14, 7.6
NA
7.6
1.14, 7.6
Equals: Corporate profits with IVA & CCAdj
Other "book" measures:
Profits after tax
1.12, 6.19, 7.16
6.19
1.14, 6.19
6.19
NA
1.14
Undistributed profits
1.12, 6.21, 5.1
6.21
6.21
6.21
NA
NA
NA Not available
CCAdj Capital consumption adjustment
IVA Inventory valuation adjustment
NIPA National income and product accounts
1. Financial corporations consist of finance and insurance and of banks and other holding companies.
2. Federal taxes on corporate income are shown in "Selected" table 3.2; seasonally unadjusted quarterly estimates appear in table 3.22
annually. State and local taxes on corporate income are shown in "Selected" table 3.3; seasonally unadjusted quarterly estimates appear in
table 3.23 annually. State taxes on corporate income are shown in table 3.20 annually; local taxes on corporate income are shown in table
3.21 annually.
3. Personal dividend income, a component of personal income, is shown in NIPA tables 2.1, 2.6, and 7.10.
In addition, estimates of gross corporate value added and of real gross corporate
value added for nonfinancial domestic corporate business are presented in NIPA table
1.14, and estimates of price, costs, and profit per unit of real gross value added of
nonfinancial domestic corporate business are presented in NIPA table 1.15. For a
description of these estimates, see the appendix to this chapter.
CHAPTER 13: CORPORATE PROFITS
13-9
Overview of Source Data and Estimating Procedures
As described earlier in the handbook, the NIPA estimates, including those for
corporate profits, are prepared using a wide variety of source data (see “Chapter 3:
Principal Source Data”) and using estimating methods that adjust the source data to the
required NIPA concepts and that fill in gaps in coverage and timing (see “Chapter 4:
Estimating Methods”). As discussed earlier in the chapter, corporate profits from current
production is derived as the sum of PBT, IVA, and CCAdj. The primary source for the
PBT estimates is tax return information provided by the IRS in Statistics of Income:
Corporation Income Tax Returns (Corporation Returns); BEA makes a series of
adjustments to these data to conform them to NIPA coverage and definitions. BEA then
adjusts the PBT estimate with the IVA and the CCAdj in order to derive an estimate of
income earned from current production that is consistent with NIPA concepts.
This section describes the sources and methods used for estimating PBT and for
estimating the distributions of PBT.
11
Payments from PBT to government as taxes on
corporate income and to shareholders in other sectors as dividends are estimated
independently and are discussed below. Undistributed profits—that is, profits that are
retained by corporations—are derived by subtracting taxes on corporate income and net
dividends from PBT.
Table 13.A at the end of the main text summarizes the source data and estimating
methods that are used to prepare the annual estimates and the current quarterly estimates
of corporate profits for the industry categories shown in NIPA table 6.16. The source data
and methods for the current quarterly estimates reflect both seasonally adjusted and not
seasonally adjusted estimates unless otherwise noted.
Annual (except most-recent-year) estimates
For all but the most recent year, the annual estimates of PBT, taxes on corporate
income, and net dividends for domestic industries are based primarily on annual
tabulations of corporate income tax returns. The annual estimates of PBT and of net
dividends for the rest of the world are from BEA's international transactions accounts
(ITAs).
12
The tabulations of corporate income tax returns are prepared by the IRS and
published in Statistics of Income: Corporation Income Tax Returns. The tabulations are
based on a stratified sample of unaudited tax returns that currently includes all active
corporations with more than $50 million of assets (with certain exceptions) and smaller
firms on a probability basis. The information on the returns is edited by the IRS in the
course of preparing the tabulations. The tabulations provide the basis for estimates for the
11
For information on the derivation of the estimates of the IVA and the CCAdj, see “Chapter 7: Change in
Private Inventories,” and see U.S. Bureau of Economic Analysis, Fixed Assets and Consumer Durable
Goods in the United States, 1925–97, September 2003.
12
For a detailed description of the ITA’s, see “U.S. International Transactions Accounts: Concepts and
Methods” (June 2014) on BEA’s website at www.bea.gov.
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13-10
corporate totals—by industry—for many of the items on the corporate income tax
returns, including receipts and expenses, tax liabilities, and balance-sheet items.
The IRS totals are the starting point for preparing the NIPA estimates. The
preliminary and final IRS tabulations become available about 2 years and 3 years,
respectively, after the year to which they refer, and this timing determines the
incorporation of these data into the NIPA estimates. For example, in the September 2023
annual update of the NIPAs, the final IRS tabulations for 2020 became the primary
source for the estimates of corporate profits for 2020 (replacing the preliminary
tabulations as the source), and the preliminary IRS tabulations for 2021 became the
primary source for the profits estimates for 2021. The estimates for the most recent year,
2022, were obtained by extrapolating the 2021 estimates (see the section “Most-recent-
year estimates”).
The adjustments that BEA makes to the IRS tabulations are summarized in the
following section, and they are described in detail in the technical note to this chapter.
Adjustments to the IRS tax return data
As discussed, the IRS corporate tax return data are the primary source for BEA’s
estimates of corporate profits. A reconciliation of the IRS and the NIPA measures is
presented annually in NIPA table 7.16, which is reproduced for the year 2017 in table
13.3 below.
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Table 13.3—Relation of NIPA Corporate Profits, Taxes, and Dividends to Corresponding
Measures as Published by the IRS
[Billions of dollars]
Line in NIPA
table 7.16
NIPA line item
2017
1
Total receipts less total deductions, IRS
1,577.8
2
Plus: Adjustment for misreporting on income tax returns
411.5
3
Posttabulation amendments and revisions
1
357.1
4
Income of organizations not filing corporation income tax returns
96.4
5
Federal Reserve banks
78.8
6
Federally sponsored credit agencies
2
8.8
7
Other
3
8.8
8
Depletion on domestic minerals
17.3
9
Adjustment to depreciate expenditures for mining exploration, shafts, and wells
-8.9
10
State and local taxes on corporate income
54.4
11
Interest payments of regulated investment companies
-226.7
12
Bad debt expense
135.1
13
Adjustment to depreciate expenditures for intellectual property products
4
140.3
14
Disaster adjustments (net)
5
30.6
Less: Tax return measures of:
15
Gains, net of losses, from sale of property
306.6
16
Dividends received from domestic corporations
331.2
17
Income on equities in foreign corporations and branches (to U.S. corporations)
159.1
18
Costs of trading or issuing corporate securities
6
54.8
19
Excess of employer expenses over actual employer contributions for defined benefit employee pension
plans
7
-63.2
20
Plus: Income received from equities in foreign corporations and branches (by all U.S. residents, net of
corresponding payments)
498.9
21
Equals: Profits before taxes, NIPAs
2,295.1
22
Federal income and excess profits taxes, IRS
358.9
23
Plus: Posttabulation amendments and revisions, including results of audit and renegotiation and carryback
refunds
-34.5
24
State and local taxes on corporate income
54.4
25
Taxes paid by domestic corporations to foreign governments on income earned abroad
12.4
26
Less: U.S. tax credits claimed for foreign taxes paid
59.6
27
Investment tax credit
8
28
Other tax credits
8
34.4
29
Equals: Taxes on corporate income, NIPAs
297.2
30
Profits after tax, NIPAs (line 21 minus line 29)
1,998.0
31
Dividends paid in cash or assets, IRS
1,876.7
32
Plus: Posttabulation adjustments and revisions
9
-323.0
33
Dividends paid by Federal Reserve banks and certain federally sponsored credit agencies
2
84.4
34
U.S. receipts of dividends from abroad, net of payments to abroad
210.4
35
Earnings remitted to foreign residents from their unincorporated U.S. affiliates
9.0
36
Interest payments of regulated investment companies
-226.7
37
Less: Dividends received by U.S. corporations
374.9
38
Earnings of U.S. residents remitted by their unincorporated foreign affiliates
2.0
39
Equals: Net corporate divided payments, NIPAs
1,253.9
1. Consists largely of an adjustment to expense all meals and entertainment, of oilwell bonus payments written off, of adjustments for insurance
companies and savings and loan associations, of amortization of intangible assets, residential real estate disposal costs, of tax-exempt interest
income and of timing adjustments.
2. Consists of the Farm Credit System and the Federal Home Loan Banks and amounts paid to U.S. Treasury by Federal Reserve banks.
3. Consists of nonprofit organizations serving business and of credit unions.
4. Intellectual property products consists of software, research and development, and entertainment, literary, and artistic originals.
5. Consists of disaster losses valued at historic-cost basis less net insurance receipts for disaster-related losses valued at replacement cost.
6. Includes the imputed financial service charge paid by corporations to domestic securities dealers who do not charge an explicit commission.
7. Employer expenses for defined benefit employee pension plans include actual employer contributions, imputed employer contributions, and
imputed interest for unfunded (or overfunded) actuarial liability.
8. Beginning with 1984, the investment tax credit is included in other tax credits (line 28).
9. Consists largely of an adjustment to remove capital gains distributions of regulated investment companies and real estate investment trusts.
CHAPTER 13: CORPORATE PROFITS
13-12
The major adjustments to IRS “total receipts less total deductions” (line 1)
required to arrive at PBT for domestic industries consist of the following:
• An allowance for the misreporting of corporate income (line 2), based on
IRS audit data;
• IRS deductions that are not elements of costs of current production:
depletion on domestic minerals (line 8), expensing of expenditures for
mining exploration, shafts, and wells (line 9), state and local taxes on
corporate income (line 10), bad debt expense (line 12), and the adjustment
to depreciate expenditures for intellectual property products (line 13);
• Elements of costs of production that are not IRS current deductions:
interest payments of regulated investment companies (line 11), net disaster
adjustments (line 14), and costs of trading or issuing corporate securities
(line 18);
• Elements of IRS income that are not income from current domestic
production: gains, net of losses, from the sale of property (line 15),
dividends received from domestic corporations (line 16), and income on
equities in foreign corporations and branches (line 17);
• The excess of employer expenses over actual employer contributions for
defined benefit employee pension plans, based on data from the Employee
Benefit Security Administration, the Pension Benefit Guarantee
Corporation, the Social Security Administration, and the American
Council of Life Insurance (line19).
To arrive at PBT on a national basis, rest-of-the-world profits, derived from the ITAs, is
added (line 20).
The adjustments to IRS “federal income and excess profits taxes” (line 22) that
are required to arrive at NIPA taxes on corporate income consist of the following:
• Tax liability disclosed by audit, renegotiation, and carryback refunds (part of
line 23);
13
• Elements of NIPA taxes on corporate income that are not included in IRS
federal income and excess profits taxes: state and local taxes on corporate
income (line 24);
• Taxes paid by domestic corporations to foreign governments on income
earned abroad (nonresident taxes) (line 25);
• IRS tax credits deducted in arriving at NIPA taxes on corporate income:
foreign tax credits (line 26), investment tax credit (line 27), and other tax
credits (line 28).
The adjustments to IRS “dividends paid in cash or assets” (line 31) required to
arrive at NIPA dividends consist of the following:
• Posttabulation amendments and revisions (line 32);
13
“Carryback refunds” are refunds claimed by corporations with losses in the current year against taxes that
they had paid in preceding years.
CHAPTER 13: CORPORATE PROFITS
13-13
• Elements of NIPA dividends not included in IRS dividends paid in cash or
assets: dividends paid by Federal Reserve banks and other federally sponsored
credit agencies (line 33) and measures of U.S. receipts of dividends from the
rest of the world net of payments to the rest of the world (lines 34, 35, and
38);
• Elements of IRS dividends paid in cash or assets that are not included in NIPA
dividends: capital gains distributions of regulated investment companies (part
of line 32), interest payments of regulated investment companies (line 36),
and dividends received by U.S. corporations (line 37).
NIPA dividends shown as net corporate dividend payments are found on line 39. This net
number accounts for dividend payments made to persons and to government (also shown
on line 18 of NIPA table 7.10, which shows a breakdown of dividends paid and received
by sector). Dividends payments made to government (federal plus state and local
governments on line 13 of table 7.10) are subtracted from total net corporate dividend
payments to arrive at personal dividend income (line 21 of table 7.10).
14
Most-recent-year estimates
Profits before tax
For PBT, the estimates for the most recent year are prepared by extrapolating the
estimates for the preceding year (for a general description of the extrapolation method,
see “Interpolation and extrapolation using an indicator series” in chapter 4). The
extrapolations are carried out separately for each of about 75 industries using indicators
that are based on a variety of source data. Two of the principal sources are the Census
Bureau’s Quarterly Financial Report and BEA tabulations of samples of shareholder
reports.
The Quarterly Financial Report is the source for the indicators for the following
industries: mining; manufacturing; wholesale trade; retail trade; information; and
professional, scientific, and technical services, except legal services. The indicators are
based on tabulations of corporate income statements collected and published quarterly by
the Census Bureau. They are derived by taking the Quarterly Financial Report measure
“income (loss) before taxes” and subtracting the following items where possible: (1)
dividend income, (2) nonrecurring items, including gain (loss) on sale of assets,
restructuring costs, and asset write-downs, and (3) net income (loss) of foreign branches
and equity in earnings (losses) of nonconsolidated subsidiaries, net of foreign taxes.
Aggregated shareholder reports are the source for the indicators for all of the
components of the following industries: construction; administrative and waste
management services; educational services; health care and social assistance; arts,
14
For more information on the derivation of dividend payments received by state and local governments,
see the NIPA methodology paper MP-5 “Government Transactions
” (September 2005) on BEA’s website
at www.bea.gov.
CHAPTER 13: CORPORATE PROFITS
13-14
entertainment, and recreation; and other services, except government. In addition, they
are the source for the indicators for most of the components of the following industries:
utilities; transportation and warehousing; finance and insurance; and real estate and rental
and leasing. The indicators are based on income from samples of shareholder reports,
including data drawn from S&P’s Compustat database for all public U.S. corporations
that have reported data for the current and the prior year. For each industry, the indicator
used is “pre-tax income” less “special charges” (unusual or nonrecurring items reported
by the company before the deduction of taxes). In addition to the removal of special
charges, BEA judgmentally removes certain other non-operating charges, such as
unrealized mark-to-market gains or losses, asset write-downs, and other valuation gains
or losses.
For some financial industries, the indicators are based on information from reports
filed with various government regulatory agencies, such as Call Reports with the Federal
Financial Institutions Examination Council, and from the annual reports of the various
financial institutions. The indicators for the few remaining domestic industries are based
on judgmental trends. For the rest-of-the-world industry, the estimates are from the ITAs.
(For more information, see table 13.A.)
Taxes on corporate income
For the two tax series for which the annual estimates are not based on IRS
tabulations of corporate income tax returns—nonresident taxes and state and local taxes
on corporate income—the estimates for the most recent year are prepared using the same
methods as those used for the preceding year (see the technical note to this chapter, table
13.8, lines 24–26).
For federal taxes, the estimates of the carryback refunds adjustment for the most
recent year are prepared using the same methods as those for the preceding annual
estimates, while the audit tax adjustment is a judgmental estimate (see the technical note,
table 13.8, line 23). For federal taxes (net of tax credits), the estimates for each industry
are prepared by extrapolation, using indicators that are based on the same sources as
those used for the PBT estimates. The industry estimates are summed and then forced to
match a control total by absorbing proportionate shares of the difference. The control
total is primarily based on data on tax collections from the Monthly Treasury Statement,
separated by liability year using information from the Department of the Treasury’s
Office of Tax Analysis.
Net dividends
Estimates for the most recent year are extrapolated, using indicators that are based
on the same sources as those used for the PBT estimates. For dividends received by U.S.
corporations from abroad, the IRS-based estimates are extrapolated using dividends paid
by foreign corporations from the ITAs. For regulated investment companies, the
estimates are extrapolated based on data from the Investment Company Institute. For real
estate investment trusts, the estimates are extrapolated based on industry source data. For
CHAPTER 13: CORPORATE PROFITS
13-15
Federal Reserve banks and for federally sponsored credit agencies, the estimates for
dividends are prepared using the same methods as those used for the preceding year (see
the technical note, table 13.9, line 34). As with the preceding annual estimates, total net
corporate dividends less dividend payments made to government yields personal dividend
income.
Current quarterly estimates
The seasonally adjusted current quarterly estimates of PBT are derived by
extrapolating the most-recent-year estimates (for an explanation of this method, see
“Interpolation and extrapolation using an indicator series” in Chapter 4). The industry
indicators used for the quarterly extrapolations are generally based on the same
(seasonally adjusted) source data as those used for the most-recent-year estimates (see
table 13.A).
Not seasonally adjusted estimates of PBT are derived using the same methods as
the seasonally adjusted estimates, using not seasonally adjusted versions of the same
indicators.
For nonresident taxes, the current quarterly estimates are prepared using the same
methods as those used for the annual estimates. Seasonally adjusted (SA) estimates of
other federal taxes are estimated by industry by dividing the SA PBT estimates by the
implicit quarterly tax rate from the most recent year and judgmentally adjusting for
outliers. This technique is based on the assumption that tax laws have not changed much
from the previous year; if tax laws change appreciably, further judgmental adjustments
are made. For state and local taxes, the estimates are based on tax collections data and on
a timing factor that, in turn, is a function of the quarter-to-quarter change in NIPA profits
before tax and the average tax rate.
15
Not seasonally adjusted (NSA) tax rates are
calculated in the same manner as SA tax rates; the SA PBT estimates are divided by the
implicit quarterly tax rate from the most recent year and judgmentally adjusting for
outliers.
Quarterly estimates of gross flows of domestic corporate dividends paid and
received are not prepared. Therefore, the current quarterly estimate of net national
dividends is derived as a residual in the calculation of the current quarterly personal
dividends.
For the first, second, and third quarters of the calendar year, preliminary quarterly
estimates of PBT, taxes on corporate income, and net dividends are released
approximately 55 days after the end of the quarter (along with the “second” estimates of
GDP), and revised quarterly estimates are released approximately 85 days after the end of
the quarter (along with the “third” estimates of GDP). In general, the preliminary
quarterly estimates are based on less complete information than the revised estimates. For
15
See Eugene P. Seskin and Alyssa E. Holdren, “Annual Revision of the National Income and Product
Accounts,” Survey 92 (August 2012): 25.
CHAPTER 13: CORPORATE PROFITS
13-16
example, for industries extrapolated with information from the Quarterly Financial
Report, the preliminary estimates are based on a subsample of the information that
becomes available a month later. For the fourth quarter of the year, preliminary estimates
are not prepared, and the only current estimates for that quarter are released
approximately 85 days after the end of the quarter. This delay occurs because the fiscal
year for most corporations ends in the fourth quarter, and additional time is needed to
complete the more comprehensive end-of-year reports.
As part of the calculation of dividends received by persons, an estimate of net
national dividends paid by corporations becomes available on the same schedule as the
estimates of GDP, approximately 25 days, 55 days, and 85 days after the end of the
quarter. In a reversal of the accounting identities used for preparing the annual estimates
of dividends, personal dividends received are estimated first. Monthly estimates of SA
personal dividends are prepared using as an indicator the seasonally adjusted dividends
paid based on a Compustat sample. The monthly estimates are averaged to derive
quarterly estimates of personal dividends received, which are then added to dividends
received by government to derive net national dividends. Rest-of-the-world dividends
(net) are subtracted to derive net domestic dividends, which are then split into financial
and nonfinancial sectors using data from the Compustat sample. NSA personal dividends
are derived using an NSA indicator based on a Compustat sample.
CHAPTER 13: CORPORATE PROFITS
13-17
Table 13.A—Summary of Methodology Used to Prepare Estimates of Corporate Profits
Line in
NIPA
table
6.16
Component
Annual (except most-recent-year)
estimates
Most-recent-year estimates*
(Indicator series used to extrapolate prior
annual estimate)
Current quarterly estimates
(Indicator series used to extrapolate most
-
recent-year estimate) *
1
Corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment:
8
Corporate profits with IVA:
9
Domestic industries:
10
Financial:
11
Federal Reserve
banks
Net income before tax—current net
earnings less assessments for the
Board of Governors and currency
costs
—from the annual report of the
Board of
Governors of the Federal
Reserve System.
Same as for annual.
Profits before tax, based on information
from the Federal Reserve Board.
12
Other financial:
Credit intermediation
and related activities
Commercial banking, savings
institutions,
and other depository credit
intermediation
: r
eceipts less deductions
from IRS tabulations of corporate
income tax returns, adjusted for
understatement of income on tax
returns and for conceptual differences.
Credit
unions:
net income after dividend
payments to shareholders and after
interest refunds, from the National
Credit Union Administration.
Federally sponsored credit agencies
:
net income as reported in the annual
reports of the following agencies: the
Federal
Home Loan Bank Board, the
Federal Home Loan Mortgage
Corporation, and the Farm Credit
System.
Nondepository credit intermediation:
r
eceipts less deductions from IRS
tabulations of corporate income tax
Commercial banking, savings institutions, and
other depository credit intermediation
: net
income before tax
—income before security
gains and losses plus provisions for loan
losses
—for insured commercial banks and
savings institutions reported to bank regulatory
agencies and compiled by the FDIC in
Quarterly Banking Profile
.
Credit u
nions: same as for annual.
Federally sponsored credit agencies
: same as
for annual.
Nondepository credit intermediation
: net
income from
BEA tabulations of samples of
shareholder reports.
Commercial banking, savings institutions,
and
other depository credit intermediation
:
for the revised estimate, same as for most
recent year; for the preliminary estimate, if
the
Quarterly Banking Profile is not
available, BEA tabulations of data from
Federal Financial Institutions Examination
Council
(FFIEC) Call Reports.
Credit u
nions: judgmental trend.
Federally sponsored credit agencies
:
same as for annual.
Nondepository credit intermediation: same
as for most recent year.
CHAPTER 13: CORPORATE PROFITS
13-18
Table 13.A—Summary of Methodology Used to Prepare Estimates of Corporate Profits
Line in
NIPA
table
6.16
Component
Annual (except most-recent-year)
estimates
Most-recent-year estimates*
(Indicator series used to extrapolate prior
annual estimate)
Current quarterly estimates
(Indicator series used to extrapolate most
-
recent-year estimate) *
returns, adjusted for understatement of
income on tax r
eturns and for
conceptual differences.
Securities, commodity
contracts, and
investments
Receipts less deductions from IRS
tabulations of
corporate income tax
returns, adjusted for understatement of
income on tax returns and for
conceptual differences.
Net income before tax from BEA tabulations of
samples of shareholder reports.
Same as for most recent year.
Insurance carriers and
related activities
Receipts less deductions from IRS
tabulations of corporate income tax
returns, adjusted for understatement of
income on tax returns and for
conceptual differences.
Life insurance carriers: net income before tax
from BEA tabulations of sa
mples of
shareholder reports.
Property and casualty insurance carriers
: net
income before tax
—investment income plus
net underwriting gains less dividends paid to
policyholders
—and a portion of catastrophic
losses from the Insurance Service Office.
Insurance agencies, brokerages, and related
services
: judgmental trend.
Life insurance carriers: same as for most
recent year.
Property and casualty insurance carriers
:
for revised estimate, same as for most
recent year; for preliminary estimate, BEA
tabul
ations of samples of shareholder
reports, and a portion of catastrophic
losses that is judgmentally trended.
Insurance agencies, brokerages, and
related services
: same as for most recent
year.
Funds, trusts, and
other financial vehicles
Receipts less deductions from IRS
tabulations of corporate income tax
returns, adjusted for understatement of
income on tax returns and for
conceptual differences.
Regulated investment companies and other
financial vehicles
: judgmental trend.
Same as for most recent year.
Management of
companies and
enterprises
Receipts less deductions from IRS
tabulations of corporate income tax
returns, adjusted for understatement of
income on tax returns and for
conceptual differences.
Bank holding companies: net income before
ta
x—income before security gains and losses
plus provisions for loan losses
—for insured
commercial banks reported to bank regulatory
agencies and compiled by the FDIC in
Quarterly Banking Profile
.
Other holding companies: judgmental trend.
Bank holding companies: for the revised
estimate, same as for most recent year;
for the preliminary estimate, if the
Quarterly Banking Profile
is not available,
BEA tabulations of data from the
FFIEC
Call Reports
.
CHAPTER 13: CORPORATE PROFITS
13-19
Table 13.A—Summary of Methodology Used to Prepare Estimates of Corporate Profits
Line in
NIPA
table
6.16
Component
Annual (except most-recent-year)
estimates
Most-recent-year estimates*
(Indicator series used to extrapolate prior
annual estimate)
Current quarterly estimates
(Indicator series used to extrapolate most
-
recent-year estimate) *
Other holding companies: same as for
most recen
t year.
13
Nonfinancial:
14
Utilities
Receipts less deductions from IRS
tabulations of corporate income tax
returns, adjusted for understatement of
income on tax returns and for
conceptual differences.
Power generation and natural gas distribution
(including combination electric and gas)
: net
income before tax from BEA tabulations of
samples of shareholder reports.
Water, sewage, and other systems: judgmental
trend.
Same as for most recent year.
15
Manufacturing
Receipts less deductions from IRS
tabulations of corporate income tax
returns, adjusted for understatement of
income on tax returns and for
conceptual differences.
Net income before tax from the Census
Bureau
Quarterly Financial Report, with
adjustments for conceptual d
ifferences.
Same as for most recent year.
28
Wholesale trade
Receipts less deductions from IRS
tabulations of corporate income tax
returns, adjusted for understatement of
income on tax returns and for
conceptual differences.
Net income before tax from the Census
Bureau
Quarterly Financial Report, with
adjustments for conceptual differences.
Same as for most recent year.
29
Retail trade
Receipts less deductions from IRS
tabulations of corporate income tax
returns, adjuste
d for understatement of
income on tax returns and for
conceptual differences.
Net income before tax from the Census
Bureau
Quarterly Financial Report, with
adjustments for conceptual differences.
Same as for most recent year.
30
Transportation and
warehousing
Receipts less deductions from IRS
tabulations of corporate income tax
returns, adjusted for understatement of
income on tax returns and for
conceptual differences.
Air transportation, rail transportation, water
transportation
, truck transportation, pipeline
transportation, and other transportation and
support activities
: net income before tax from
Same as for most recent year.
CHAPTER 13: CORPORATE PROFITS
13-20
Table 13.A—Summary of Methodology Used to Prepare Estimates of Corporate Profits
Line in
NIPA
table
6.16
Component
Annual (except most-recent-year)
estimates
Most-recent-year estimates*
(Indicator series used to extrapolate prior
annual estimate)
Current quarterly estimates
(Indicator series used to extrapolate most
-
recent-year estimate) *
BEA tabulations of samples of shareholder
reports.
Transit and ground passenger transportation
and warehousing and storage
: judgmental
trend.
31
Information
Receipts less deductions from IRS
tabulations of corporate income tax
returns, adjusted for understatement of
income on tax returns and for
conceptual differences.
Net income before tax from the Census
Bureau
Quarterly Financial Report, with
adjustments for conceptual differences.
Same as for most recent year.
32
Other nonfinancial:
Agriculture, forestry,
fishing, and hunting
Receipts less deductions from IRS
tabulations of corporate income tax
returns, adjusted for understatement of
income on tax returns and for
conceptual differences.
Farms: BEA estimates of net farm income,
based on information from the U.S.
Department of Agriculture.
Other
: judgmental trend.
Same as for most recent year.
Mining
Receipts less deductions from IRS
tabulations of corporate income tax
returns, adjusted for understatement of
income on tax returns and for
conceptual differences.
Net income before tax from the Census
Bureau
Quarterly Financial Report, with
adjustments for conceptual differences.
Same as for most recent year.
Professional, scientific,
and technical services
Receipts less deductions from IRS
tabulations of corporat
e income tax
returns, adjusted for understatement of
income on tax returns and for
conceptual differences.
Computer systems design and related services
and miscellaneous professional, scientific, and
technical services
: net income before tax from
the Census Bureau
Quarterly Financial Report
,
with adjustments for conceptual differences.
Legal services: judgmental trend.
Same as for most recent year.
Other
Receipts less deductions from IRS
tabulations of corporate incom
e tax
returns, adjusted for understatement of
Construction; real estate; administrative and
waste management services
; educational
services;
health care and social assistance;
arts, entertainment, and recreation;
Same as for most recent year.
CHAPTER 13: CORPORATE PROFITS
13-21
Table 13.A—Summary of Methodology Used to Prepare Estimates of Corporate Profits
Line in
NIPA
table
6.16
Component
Annual (except most-recent-year)
estimates
Most-recent-year estimates*
(Indicator series used to extrapolate prior
annual estimate)
Current quarterly estimates
(Indicator series used to extrapolate most
-
recent-year estimate) *
income on tax returns and for
conceptual differences.
accommodation and food services; and other
services, except government
: net income
before tax from BEA tabulations of samples of
shareholder reports.
Rental and leasing services and lessors of
intangible assets: judgmental trend.
33
Rest of the world
Receipts and payments from BEA’s
international transactions accounts,
adjusted to NIPA concepts and
definitions.
Same as for annual.
Same as for annual.
* The description “Same as for annual” indicates that the estimate is prepared using a methodology similar to that used for the annual estimate rather than by
using an indicator series to interpolate or extrapolate the annual estimate.
BEA Bureau of Economic Analysis
FDIC Federal Deposit Insurance Corporation
IRS Internal Revenue Service
NIPAs National income and product accounts
CHAPTER 13: CORPORATE PROFITS
13-22
Technical Note: Adjustments to IRS Tax Return Data
This technical note provides detailed descriptions of the adjustments that are
made to the IRS corporate tax return data on profits, taxes, and dividends in order to
conform them to NIPA concepts and definitions. These adjustments are published
annually in “Table 7.16. Relation of Corporate Profits, Taxes, and Dividends in the
National Income and Product Accounts to Corresponding Measures as Published by the
Internal Revenue Service.” Reproductions of portions of this table are shown below in
tables 13.4, 13.8, and 13.9.
Corporate profits before tax
The starting point for the derivation of the estimates of profits before tax (PBT) is
“Total receipts less total deductions, IRS” shown on line 1 in table 13.4 below. For each
industry, total receipts less total deductions is obtained from Corporation Income Tax
Returns. (This item differs from income subject to tax, as defined on the corporate tax
return, in that it includes tax-exempt interest and excludes special statutory deductions
that are available for corporations.) The adjustments to the IRS data are discussed below
in the order shown in the table.
CHAPTER 13: CORPORATE PROFITS
13-23
Table 13.4—Relation of NIPA Corporate Profits to Corresponding Measures as
Published by the IRS
[Billions of dollars]
Line in
NIPA
table
7.16
NIPA line item
2017
1
Total receipts less total deductions, IRS
1,577.8
2
Plus: Adjustment for misreporting on income tax returns
411.5
3
Posttabulation amendments and revisions
1
357.1
4
Income of organizations not filing corporation income tax returns
96.4
5
Federal Reserve banks
78.8
6
Federally sponsored credit agencies
2
8.8
7
Other
3
8.8
8
Depletion on domestic minerals
17.3
9
Adjustment to depreciate expenditures for mining exploration, shafts, and
wells
-8.9
10
State and local taxes on corporate income
54.4
11
Interest payments of regulated investment companies
-226.7
12
Bad debt expense
135.1
13
Adjustment to depreciate expenditures for intellectual property products
4
140.3
14
Disaster adjustments (net)
5
30.6
Less: Tax return measures of:
15
Gains, net of losses, from sale of property
306.6
16
Dividends received from domestic corporations
331.2
17
Income on equities in foreign corporations and branches (to U.S.
corporations)
159.1
18
Costs of trading or issuing corporate securities
6
54.8
19
Excess of employer expenses over actual employer contributions for defined benefit
employee pension plans
7
-63.2
20
Plus: Income received from equities in foreign corporations and branches (by all
U.S. residents, net of corresponding payments)
498.9
21
Equals: Profits before taxes, NIPAs
2,295.1
1. Consists largely of an adjustment to expense all meals and entertainment, of oilwell bonus payments
written off, of adjustments for insurance companies and savings and loan associations, of amortization
of intangible assets, residential real estate disposal costs, of tax-exempt interest income and of timing
adjustment.
2. Consists of the Farm Credit System and the Federal Home Loan Banks.
3. Consists of nonprofit organizations serving business and of credit unions.
4. Intellectual property products consists of software, research and development, and entertainment,
literary, and artistic originals.
5. Consists of disaster losses valued at historic-cost basis less net insurance receipts for disaster-related
losses valued at replacement cost.
6. Includes the imputed financial service charge paid by corporations to domestic securities dealers who
do not charge an explicit commission.
7. Employer expenses for defined benefit employee pension plans include actual employer contributions,
imputed employer contributions, and imputed interest for unfunded (or overfunded) actuarial liability.
Adjustment for misreporting on income tax returns (line 2). This adjustment is primarily
based on IRS audit data. Unlike the tax-return source data, which reflects a specific tax
year, the audit data is based on the year the audit is resolved and collected. For the audit
data, it is assumed there is a 1-year lag between the referenced tax year and the year in
CHAPTER 13: CORPORATE PROFITS
13-24
which the majority of audits for that tax year are resolved. Thus, for the misreporting
adjustment, the most recent audit data is used to derive an adjustment for the preceding
tax year. For example, in the 2023 comprehensive update of the NIPAs, 2021 was the
most recent tax year, and 2020 was the year for which the available audit data were used
to prepare the misreporting adjustment. For subsequent years, the adjustment was
judgmentally extrapolated.
The IRS audit consists of three steps. First, the IRS audits a small sampling of
corporations and recommends how much, if any, additional tax liability is owed. Next,
the corporations can appeal those recommendations. Finally, a resolution between the
corporation and the IRS is reached, and the corporation pays the IRS.
The methodology for the misreporting adjustment is to capture only the amount of
tax actually collected (see the section “Taxes on Corporate Income”), raise it to a
universe total, and then convert it from a tax-liability measure to a profits measure. The
IRS publishes data on the recommended additional tax liability owed, stratified by asset
size, but the amount actually collected is provided only for the total. Therefore, a ratio of
additional collected tax to recommended additional tax is developed and applied to the
recommended amounts on an asset-by-size basis to derive a universal total for additional
tax liability. Finally, this tax-liability estimate is converted to a profits estimate using the
statutory tax rate.
The above methodology applies to corporations that are paying taxes on positive
net income. For companies that report deficits and pay no taxes, the percentage of
corporate deficits reported by IRS (based on historical research) is added to the above
estimate of profits misreporting to arrive at the corporate misreporting adjustment.
Posttabulation amendments and revisions (line 3). This adjustment includes a number of
various items. They are described briefly in table 13.5 below.
CHAPTER 13: CORPORATE PROFITS
13-25
Table 13.5—Current Post-tabulation Amendments and Revisions to IRS "Total Receipts Less Total Deductions"
Adjustment Start year
Estimates
(millions of
dollars)
Type and purpose of
adjustment
Sources and methods
2017
Special
assessments
1946
-776
Definitional adjustment: To reflect the
inclusion of assessments for the costs of
improvements, such as streets and curbs,
that benefit property owners as expenses
in calculating NIPA profits.
Adjustments are based on Census
Bureau data on state and local
government receipts.
Oil well bonus
payments
1946
254
Definitional adjustment: To reflect the
exclusion of bonus payments for drilling
rights to land owners and lessors as
expenses in calculating NIPA profits.
Adjustments are based on Energy
Information Administration
annual estimates of dry-hole
expenses.
Fines
1978
-39,379
Definitional adjustment: To reflect the
inclusion of fines as an expense in
calculating NIPA profits.
Adjustments are based on federal
budget data and on information on
court awards.
Intangible
amortization
1981
118,820
Definitional adjustment: To reflect the
exclusion of the amortization of intangible
assets as an expense in calculating NIPA
profits.
Adjustments are based on CITR
data.
Imputed tax
returns
1984
0
Coverage adjustment: To replace imputed
tax data for a year with the tax return data
for that year
Adjustments are based on IRS
data.
1120-S pass
through
1987
-22,862
Definitional adjustment: To restate profits
of small business corporations to reflect
the income and expenses that are passed
to shareholders rather than reported by the
corporation.
Adjustments are based on CITR
tabulations.
Business
entertainment
1987
-21,111
Definitional adjustment: To treat all the
expenses for business meals and
beverages and entertainment as expenses
in calculating NIPA profits.
Adjustments are based on BEA's
input-output calculations.
Corporate share is based on CITR
tabulations.
Insurance
adjustments
1985
5,826
Definitional adjustment: To remove all
unpaid premiums and losses from receipts
and deductions so that the profits of
property and casualty insurance
companies and of mutual life insurance
companies are restated and reflect the
amounts paid to policyholders as
dividends.
Adjustments are based on CITR
tabulations.
Dividends
received from
Federal Reserve
banks (FRBs)
and Federal
Home Loan
Banks (FHLBs)
1959
-2,319
Definitional adjustment: To reflect the
exclusion of taxable dividends received
by commercial banks from Federal
Reserve banks and by savings and loan
associations from FHLBs, which are
included in CITR "other receipts," from
NIPA profits.
1
Adjustments are based on FRB
and FHLB data.
Domestic
production
activities
deduction
2005
30,837
Definitional adjustment: To remove the
deduction for domestic production
activities from the calculation of NIPA
profits.
Adjustments are based on CITR
data.
CHAPTER 13: CORPORATE PROFITS
13-26
Residential real
estate disposal
costs
1929
-1,620
Definitional adjustment: Residential
disposal costs are capitalized for NIPA
purposes and thus included in estimates of
capital consumption allowance (CCA).
For tax purposes, residential disposal
costs adjust the basis on which capital
gains (losses) are calculated. Because
profits measures exclude the impact of
capital gains (losses), a subtraction
adjustment is made to offset the related
CCA adjustment.
Adjustments are based on NIPA
investment data.
Other
2
1959
289,167
Miscellaneous adjustments to put profits
on a current production basis including
the following: deductions of regulated
investment companies,
nontaxable
subsidies, interest expense limitations,
interest capitalization and timing
differences.
3
Adjustments are based on CITR
data and other sources.
BEA Bureau of Economic Analysis
CITR Statistics of Income: Corporation Income Tax Returns
IRS Internal Revenue Service
NIPA National income and product accounts
1. Dividends received by domestic corporations are excluded from NIPA profits; see line 16 of NIPA table 7.16.
2. These adjustments are grouped to avoid the disclosure of information.
3. For more information on the treatment of regulated investment companies and real estate investment trusts within
corporate profits, see Robert J. Kornfeld,
Improved Measures of Regulated Investment Companies and Real Estate
Investment Trusts for the U.S. National Economic Accounts, Survey of Current Business 103 (May 2023).
Income of Federal Reserve banks and other federally sponsored credit agencies (lines 5
and 6). Federal Reserve banks, Federal Home Loan Banks, and the Farm Credit System
are included in the corporate sector of the NIPAs. Because these institutions do not file
tax returns, their income and expenses are not included in Corporation Income Tax
Returns. Through this adjustment, the profits of these institutions are included in PBT,
based on information on net income from their annual reports.
Other organizations not filing corporation income tax returns (line 7). Personal injury
trusts, the Universal Service Administration Company (USAC), and nonprofit
organizations serving business that are exempt from income tax under section 501(c) are
included in the NIPA corporate sector. Personal injury trusts are business-established
independent legal entities that administer payments for damages resulting from product
liability claims. These payments are considered transfer payments from business to
persons at the time the funds are disbursed. Receipts and payments data are collected
from individual trust fund reports. USAC earnings are measured as receipts less outlays,
from the Monthly Treasury Statement. The earnings (surplus) of agricultural
organizations, business leagues, chambers of commerce, real estate boards, boards of
trade, and organizations to finance crop operations are based on IRS tabulations of
information returns filed by tax-exempt organizations.
CHAPTER 13: CORPORATE PROFITS
13-27
The earnings of credit unions are treated as PBT in the NIPAs; however, they are
not reflected in Corporation Income Tax Returns, because income of these institutions is
not taxed. The adjustment consists of net income less dividends to shareholders and
interest refunds as tabulated by the National Credit Union Administration for state-
chartered and federally chartered credit unions.
Depletion on domestic minerals (line 8). Natural resource discoveries are not considered
to be capital formation in the NIPAs; consequently, depletion—the charge for the using
up of these resources—is not a charge against current production. In contrast, the IRS
permits depletion to be charged as an expense. Through this adjustment, the Corporation
Income Tax Returns expense “depletion” is reduced by the domestic depletion claimed on
tax returns, thereby increasing profits. The adjustment is calculated as the difference
between depletion from Corporation Income Tax Returns and an estimate of foreign
depletion based on special IRS studies. (The effect of foreign depletion is removed in line
17.)
Adjustment to depreciate expenditures for mining exploration, shafts, and wells (line 9).
Expenditures for mining exploration, shafts, and wells are treated as capital formation in
the NIPAs. In contrast, the IRS permits some of these expenditures to be charged as
current expense. Therefore, “other deductions” in Corporation Income Tax Returns are
adjusted to remove the expensed portion of the current year’s investment and to add
depreciation charges on investment made in the current and in previous years.
Estimates of oil and natural gas drilling expenses are obtained from data on
drilling footage and on prices from the American Petroleum Institute’s Joint Association
Survey on Drilling Costs, BLS producer price indexes (PPIs), and until 1995, the Census
Bureau’s Annual Survey of Oil and Gas. Beginning with 2006, prices are based on the
Census Bureau’s Annual Capital Expenditures Survey and on PPIs. Estimates of
expenses for the construction of mine shafts (for minerals other than petroleum and
natural gas) are based on the quinquennial economic census and on capital expenditures
from the Annual Capital Expenditures Survey. Depreciation charges for investment in
mining exploration, shafts, and wells are estimated using a perpetual inventory
calculation in which the investment is depreciated over time.
The adjustment is prepared as an aggregate for all business and is allocated by
legal form of organization and by industry, based on IRS tax-return data.
State and local taxes on corporate income (line 10). PBT is measured before deduction of
income taxes. Because state and local income taxes are expense items on the federal tax
return, they must be added to Corporation Income Tax Returns “total receipts less
deductions.” The estimate of taxes is based on state and local government receipts
compiled by the Census Bureau in Quarterly Summary of State and Local Tax Revenue.
The industry distribution of these taxes is based on data from Corporation Income Tax
Returns for federal income tax liability.
CHAPTER 13: CORPORATE PROFITS
13-28
Interest payments of regulated investment companies (line 11). Interest payments of
regulated investment companies are not reflected as expenses in the Corporation Income
Tax Returns measure of total deductions. The adjustment adds interest payments as an
expense in calculating NIPA profits and is equal to the interest received less the interest
share of total deductions, based on Corporation Income Tax Returns tabulations for
regulated investment companies.
Bad debt expense (line 12). Bad debt expenses are not considered to be expenses
associated with current production and thus should not be reflected as expenses in
calculating NIPA profits. The adjustment removes these expenses, based on the bad-debt
expense item in the Corporation Income Tax Returns.
Adjustment to depreciate expenditures for intellectual property products (line 13).
Expenditures for intellectual property products are treated as capital formation in the
NIPAs.
16
In contrast, the IRS permits some of these expenditures to be charged as current
expense. Therefore, “other deductions” in Corporation Income Tax Returns are adjusted
to remove the expensed portion of the current year’s investment and to add depreciation
charges on investment made in the current and in previous years. This adjustment is
described briefly in table 13.6 below.
Table 13.6—Adjustment to Depreciate Expenditures for Intellectual Property Products
Adjustment
Start
year
Estimates
(millions of
dollars)
Type and purpose of
adjustment
1
Sources and methods
2015
Research and
development
1929
70,639
Definitional: Business and
government expenditures
recognized as fixed
investment.
Primarily based on BEA
investment data, which in
turn, are based on National
Science Foundation survey
data.
Software
1959
18,881
Definitional: Business and
government expenditures
recognized as fixed
investment.
Primarily based on BEA
investment data, which in
turn, are based on Census
Bureau Economic Census
and survey data and on BLS
survey data.
Entertainment,
literary, and artistic
originals
1929
6,606
Definitional: Business and
government expenditures
for entertainment
originals are recognized
as fixed investment.
Primarily based on BEA
investment data, which in
turn, are based on Census
Bureau Economic Census
and survey data.
16
As part of the 2013 comprehensive update of the NIPAs, BEA began treating expenditures on research
and development and on entertainment, literary, and artistic originals as fixed investment and thus the
depreciation of these assets as consumption of fixed capital. For more information, see “
Preview of the
2013 Comprehensive Revision of the National Income and Product Accounts,” Survey 93 (March 2013):
14–20.
CHAPTER 13: CORPORATE PROFITS
13-29
Note. For more information on the sources and methods for intellectual property products, see the technical
note at the end of “Chapter 6: Private Fixed Investment
.”
Disaster adjustments (net) (line 14). In the NIPAs, the loss of capital as a result of a
catastrophic disaster and the insurance payouts that result from them do not affect income
associated with current production. The adjustment consists of (1) the net of the value of
losses recorded as depreciation (a current business expense) and (2) the insurance payouts
made by insurance companies as a charge against profits less the income received by the
claim holders.
17
Depreciation estimates are based on data on insured damages at current cost,
broken down by type, from the Insurance Service Office. The amount is adjusted for
uninsured damages, distributed by industry according to regional impact using data from
the Census Bureau’s County Business Patterns, and converted to historic-cost
depreciation using various service lives and price indexes. In contrast, the IRS allows all
uninsured disaster losses to be charged as current business expenses in “other deductions”
on Form 4684.
Insurance payouts and receipts are also based on data from the Insurance Service
Office, supplemented by government insurance fund transactions. Income receipts are
distributed by industry using the above information on historic-cost depreciation.
Gains, net of losses, from sale of property (line15). Gains (net of losses) from sales of
fixed assets and securities are not considered to be income from current production.
Corporation Income Tax Returns total receipts less total deductions are adjusted to
remove these gains and losses. The adjustment consists of the following items from
Corporation Income Tax Returns: (1) the excess of net short-term capital gain over net
long-term capital loss, from Schedule D, (2) the excess of net long-term capital gain over
short-term capital loss (except for regulated investment companies), from schedule D,
and (3) the net gain or loss from Form 4797 with two modifications for cases in which the
gain or loss reflects current production.
The first modification relates to income from the sale of timber, coal, iron ore,
livestock, and unharvested crops. This income is treated as a gain or a loss for tax
purposes but should be included in NIPA profits because it reflects current production.
Therefore, an estimate of such gains or losses, based on data from Corporation Income
Tax Returns and from BEA special studies, is subtracted from the Corporation Income
Tax Returns net gains.
17
In the 2009 comprehensive update, BEA introduced a new treatment of major disasters (those in which
either the associated property losses or the insurance payouts exceed 0.1 percent of GDP) that records them
as “changes in the volume of assets” rather than as consumption of fixed capital; see Eugene P. Seskin and
Shelly Smith, “
Preview of the 2009 Comprehensive Revision of the NIPAs: Changes in Definitions and
Presentations,” Survey 89 (March 2009): 11–15.
CHAPTER 13: CORPORATE PROFITS
13-30
The second modification relates to “normal” accidental damage to fixed business
capital.
18
In Corporation Income Tax Returns, the net gains items include the excess of
insurance payments for accidental damage over the historical-cost book value of the
damaged property. In the NIPAs, this amount is not considered a capital gain: the
insurance payment is an expense of current production for insurance carriers, and the
historical cost of the damaged property is treated as depreciation. Thus, the Corporation
Income Tax Returns net gains items are modified to exclude the amount of excess, which
is estimated as the difference between the insurance payments, based on data on
insurance losses from Best’s Aggregates and Averages: Property-Casualty, and BEA
estimates of normal accidental damage to fixed capital other than repairable damage (see
NIPA table 7.13, line 5).
Dividends received from domestic corporations (line 16). These dividends are not part of
corporate income from current production. However, receipts by corporations of
dividends paid to them by other domestic corporations are included in total receipts less
deductions in Corporation Income Tax Returns. This adjustment, based on information
from Corporation Income Tax Returns, removes these dividends.
Income on equities in foreign corporations and branches (to U.S. corporations) (line 17).
This adjustment places total receipts less total deductions from Corporation Income Tax
Returns on a domestic basis by removing the income earned abroad by U.S. corporations
that is included in this total. The adjustment is estimated as the sum of (1) dividends
received from abroad, from Corporation Income Tax Returns; (2) other foreign-source
income reported in support of claims for foreign tax credits, from special IRS tabulations
of Form 1118; and (3) income earned by U.S. corporations from operations in U.S.
commonwealths and territories, from special IRS tabulations.
Costs of trading or issuing corporate securities (line 18). The costs of trading and issuing
corporate securities are treated as expenses of the current period in calculating NIPA
profits. In contrast, in tax accounting, these costs are usually deferred, so an adjustment is
needed. This adjustment can be divided into two parts: commissions (both explicit and
implicit) and flotation costs (the costs of issuing debt or equity securities).
The securities trading costs adjustment converts tax data, which treat expenses for
brokers’ commissions as a reduction in future capital gains income, to a current-period
expense for the purchase of brokers’ services. Most corporate capital gains are excluded
by subtracting net gains reported on IRS tax forms using IRS source data associated with
Schedule D of IRS Form 1120. However, this adjustment does not account for the capital
gains on own-account trading of securities brokers and dealers, which reflect the imputed
financial service charge paid by corporations to domestic securities dealers who do not
charge an explicit commission. Thus, a separate adjustment is needed to exclude these
types of capital gains.
18
The NIPA treatment of the loss of capital as a result of a catastrophic disaster was covered in the above
discussion of line 14.
CHAPTER 13: CORPORATE PROFITS
13-31
The securities trading costs adjustment treats commissions to brokers, commercial
banks, and savings institutions from securities trading as an expense in the current period
rather than as a reduction in future capital gains income. This adjustment applies to both
explicit commissions and commissions indirectly charged through markups or “spreads”
between the cost of acquiring a security and its sales price.
The estimates of trading costs are based on product-line data on gains from
brokering and dealing equities, debt securities, and derivatives from the Census Bureau’s
2012 Economic Census. These data are used to estimate total indirect commissions
received, which are treated as expenses of the corporations purchasing securities from
broker-dealers, and are allocated by type of buyer using Federal Reserve Board flow of
funds data on securities holdings. Estimates of direct commissions are derived similarly.
For commercial banks and for savings institutions, capital gains are estimated as the sum
of trading account gains and fees and of securities gains from the Federal Deposit
Insurance Corporation data, less indirect commissions. For security brokers and dealers,
estimates of capital gains through 2006 are based on data on gains from dealing and
trading accounts from the Census Bureau’s Service Annual Survey, less indirect
commissions; thereafter, they are extrapolated based on company financial reports.
19
For flotation costs, the adjustment is made to treat them as an expense in the
current period rather than as amortized costs. The estimate is based on tabulations of new
offerings of corporate securities and of associated expenses by the Securities and
Exchange Commission (SEC). The allocation by industry is based on the SEC tabulations
and on data on holdings of long-term mortgages and capital stocks from Corporation
Income Tax Returns.
Excess of employer expenses over actual employer contributions for defined benefit
employee pension plans (line19). Corporate income tax return data on employer expenses
for defined benefit plans are adjusted to reflect the difference between cash-based and
accrual-based compensation and the interest costs of any underfunded or overfunded
actuarial liabilities.
20
The adjustment is based on data from the Employee Benefit
Security Administration, the Pension Benefit Guarantee Corporation, the Social Security
Administration, and the American Council of Life Insurance.
Income received from equities in foreign corporations and branches by all U.S. residents,
net of corresponding payments (line 20). As noted previously, the adjustments to total
receipts less total deductions thus far produce estimates of PBT for domestic industries
and exclude rest-of-world profits. To arrive at PBT on a national basis, rest-of-the-world
profits, derived from BEA’s international transactions accounts (ITAs), are added as an
adjustment. The derivation of the adjustment is shown in table 13.7 below.
19
For additional information on securities trading adjustments, see Clinton P. McCully and Steven Payson,
“Preview of the 2009 Comprehensive Revision: Statistical Changes
,” Survey 89 (May 2009): 13–14.
20
As part of the 2013 comprehensive update of the NIPAs, the treatment of pension plans was improved by
recording the transactions of defined benefit pension plans on an accrual basis and by recognizing the costs
of unfunded liabilities. For more information, see “
Preview of the 2013 Comprehensive Revision of the
National Income and Product Accounts,” 21–25.
CHAPTER 13: CORPORATE PROFITS
13-32
Table 13.7--Derivation of the Rest-of-the-World Profits Measures
[Millions of dollars]
Profits
measures
(receipts
less
payments)
2017
estimate
Receipts from rest of the world
Payments to rest of the world
1
ITA item
2017
estimate
ITA item
2017
estimate
Profits before tax (PBT)
498,898
804,126
305,228
374,151
Earnings on USDIA
534,658
Earnings on FDIUS
160,507
375,142
Earnings (net of withhholding
taxes)
533,958
Earnings (net of withhholding
taxes)
158,816
-991
Cross-border (withholding taxes)
700
Cross-border (withholding
taxes)
1,691
91,696
Other private receipts (part)
236,304
Other private receipts (part)
144,608
33,051
Income of U.S. commonwealths
and territories
2
33,164
Income of U.S. commonwealths and
territories
2
113
Taxes on corporate income
3
0
0
0
Net dividends
210,360
420,474
210,115
118,663
Distributed earnings on USDIA
184,170
Distributed earnings on FDIUS
65,507
119,654
Distributed (net of withhholding
taxes)
183,470
Distributed (net of withhholding
taxes)
63,816
-991
Cross-border (withholding taxes)
700
Cross-border (withholding taxes)
1,691
91,696
Other private receipts (part)
236,304
Other private receipts (part)
144,608
80,294
Other private (net of withholding
taxes)
219,661
Other private (net of withholding
taxes)
139,367
11,402
Cross-border (withholding taxes)
16,643
Cross-border (withholding taxes)
5,241
Undistributed profits
288,538
383,651
95,113
255,487
Reinvested earnings on USDIA
350,487
Reinvested earnings on FDIUS
95,000
33,051
Income of U.S. commonwealths
and territories
2
33,164
Income of U.S. commonwealths and
territories
2
113
FDIUS Foreign direct investment in the United States
USDIA U.S. direct investment abroad
1. Sign reversed.
2. The addition of the income for U.S. commonwealths and territories reflects the geographic coverage of the national
income and product accounts.
3. Assumes that the foreign tax credit equals tax liability on income earned abroad.
Note. Profits from the rest of the world do not include an inventory valuation adjustment.
The adjustment consists of receipts by all U.S. residents, including both
corporations and persons, of earnings (both distributed and reinvested) of foreign
affiliates of U.S. direct investors and of the dividends portion of “other” private receipts,
less corresponding outflows. All items are recorded net of income taxes and of capital
gains and losses—except the dividend portions of both direct investment income and
portfolio income, which are recorded before the deduction of nonresident taxes withheld.
The data from the ITAs are adjusted to remove the transactions of the
Commonwealth of Puerto Rico and of other U.S. commonwealths and territories in order
CHAPTER 13: CORPORATE PROFITS
13-33
to conform to the geographic coverage in the NIPAs—the 50 states and the District of
Columbia (see the section “Geographic coverage” in Chapter 2).
Taxes on corporate income
The starting point for the derivation of taxes on corporate income is IRS total
income tax, which is shown as “Federal income and excess profits taxes, IRS” on line 22
in table 13.8 below. For each industry, this item is obtained from Corporation Income
Tax Returns. It measures total income taxes before allowances for tax credits, and it is the
gross federal income tax liability on income from all sources. The adjustments to the IRS
data are discussed below in the order shown in the table.
Table 13.8—Relation of NIPA Corporate Taxes to Corresponding Measures as Published
by the IRS
[Billions of dollars]
Line
in
NIPA
table
7.16
NIPA line item
2017
22
Federal income and excess profits taxes, IRS
358.9
23
Plus: Posttabulation amendments and revisions, including results of
audit and renegotiation and carryback refunds
-34.5
24
State and local taxes on corporate income
54.4
25
Taxes paid by domestic corporations to foreign governments on
income earned abroad
12.4
26
Less: U.S. tax credits claimed for foreign taxes paid
59.6
27
Investment tax credit
8
28
Other tax credits
8
34.4
29
Equals: Taxes on corporate income, NIPAs
297.2
30
Profits after tax, NIPAs (line 21 minus line 29)
1,998.0
8. Beginning with 1984, the investment tax credit is included in other tax credits (line 28).
Posttabulation amendments and revisions, including results of audit and renegotiation and
carryback refunds (line 23). An adjustment for the results of audit, renegotiation, and
carryback refunds is necessary because Corporation Income Tax Returns tabulations are
compiled from samples of unaudited tax returns. The audit adjustment is the amount of
additional tax liability owed by firms that are actually audited. It is actual tax settlements
derived in the first step of the calculation of the audit adjustment for PBT (line 2 in table
13.4). The adjustment is distributed by industry in the same way as the audit adjustment
for PBT. The audit adjustment is unique among tax adjustments in that the source data
are not available to adjust the preliminary IRS tabulations; for that estimate, the
adjustment is made judgmentally.
CHAPTER 13: CORPORATE PROFITS
13-34
In the NIPAs, tax refunds resulting from net operating losses are viewed as
reducing tax liability in the year of the loss. IRS permits corporations with such losses to
carry the loss back to claim a refund for taxes paid in preceding years and to carry
forward the amount of the loss to offset profits in future years. BEA obtains data on
carryback refunds from IRS tabulations of applications for carryback refunds. The
adjustment is allocated by industry on the basis of deficits reported in Corporation
Income Tax Returns. No adjustment is required for carry-forward losses, because the
lower tax payments are reflected in Corporation Income Tax Returns. As indicated in
table 13.5, several of the posttabulation adjustments to profits also have a tax impact.
State and local taxes on corporate income (line 24). In the NIPAs, taxes on corporate
income includes federal, state, and local taxes. Because state and local taxes are an
expense item on the federal tax return, they must be added to the Corporation Income
Tax Returns item, which includes only federal taxes. The estimate of taxes is based on
state and local government receipts compiled by the Census Bureau in Quarterly
Summary of State and Local Tax Revenue. The industry distribution of these taxes is
based on data from Corporation Income Tax Returns for federal income tax liability. The
adjustment is the same as that for PBT (shown on line 10 in table 13.4).
Taxes paid by domestic corporations to foreign governments on income earned abroad
(line 25). This adjustment records the payment of nonresidential taxes on the exports of
services and income. The estimates are based on the ITAs. The annual total is allocated to
industries using the industry distribution of foreign tax credits, based on data from
Corporation Income Tax Returns.
Tax credits (lines 26–28). The NIPA measure of taxes on corporate income reflects actual
tax liability; consequently, tax credits must be subtracted from the Corporation Income
Tax Returns tax item, which is before allowance for tax credits. Data for the adjustments
by industry are from Corporation Income Tax Returns.
U.S. tax credits claimed for foreign taxes paid (line 26). The adjustment consists of the
foreign tax credit (1929 forward) and the American Samoa economic development credit
(2007 forward).
Investment tax credit (line 27). The adjustment is shown separately from 1962 through
1983; beginning with 1984, the investment tax credit is included in “other tax credits”
(line 28).
Other tax credits (line 28). The adjustment includes all other corporate tax credits,
whether they are always accounted for separately by the IRS, are always included within
the general business credit, or were at first accounted for separately but later included
within the general business credit. The general business credit (1984 forward) combined
the investment tax credit, the targeted jobs credit (1977 forward), the alcohol fuel credit
(1980 forward), and the employee stock ownership credit (1982–86, then eliminated) and
CHAPTER 13: CORPORATE PROFITS
13-35
became the umbrella category under which most later tax credits are included and not
listed separately.
Tax credits that are always listed separately are the prior year (alternative)
minimum tax credit (1988 forward) and the credit to holders of tax credit bonds (2008
forward), which includes the qualified zone academy bond credit (1998 forward).
Tax credits that were listed separately at first but later included within the general
business credit are the nonconventional source fuel credit (1980 forward, included
beginning with 2006), the research activities credit (1981 forward, included beginning
with 1986), and the orphan drug credit (1984 forward, included beginning with 1986).
CHAPTER 13: CORPORATE PROFITS
13-36
Corporate dividends
The starting point for the derivation of dividends is IRS distributions to
stockholders, cash and property except in own stock, which is shown as “Dividends paid
in cash or assets, IRS” on line 31 in table 13.9 below. For each industry, this item is
obtained from Corporate Income Tax Returns. It consists of cash and noncash payments
out of current or retained earnings, and it does not include liquidating dividends or other
distributions of paid-in capital. The adjustments to the IRS data are discussed below in
the order shown in the table.
Table 13.9—Relation of NIPA Corporate Dividends to
Corresponding Measures as Published by the IRS
[Billions of dollars]
Line
in
NIPA
table
7.16
NIPA line item
2017
31
Dividends paid in cash or assets, IRS
1,876.7
32
Plus: Posttabulation amendments and revisions
9
-323.0
33
Dividends paid by Federal Reserve banks and certain federally
sponsored credit agencies
2
84.4
34
U.S. receipts of dividends from abroad, net of payments to
abroad
210.4
35
Earnings remitted to foreign residents from their unincorporated
U.S. affiliates
9.0
36
Interest payments of regulated investment companies
-226.7
37
Less: Dividends received by U.S. corporations
374.9
38
Earnings of U.S. residents remitted by their unincorporated
foreign affiliates
2.0
39
Equals: Net corporate divided payments, NIPAs
1,253.9
9. Consists largely of an adjustment to remove capital gains distributions of regulated investment companies
and real estate investment trusts.
CHAPTER 13: CORPORATE PROFITS
13-37
Posttabulation amendments and revisions (line 32). Several of the posttabulation
adjustments to profits have an impact on dividends as well. These and other
posttabulation adjustments are described in table 13.10 below.
Table 13.10--Posttabulation Adjustments and Revisions to IRS "Dividends paid in
Cash or Assets"
Adjustment
Start
year
Estimates
(millions
of
dollars)
2017
Type and
purpose of
adjustment
1
Sources and
methods
Personal foreign
dividends
1959
-69,442
Coverage
adjustment: To
include the
dividends received
by U.S. residents in
"dividends received
from the rest of
world."
Adjustments are
based on CITR
dividends and data
from BEA's
international
transactions accounts.
Dividends
received from
Federal Reserve
banks and
Federal Home
Loan Banks
1929
-2,319
Definitional
adjustment: See
table 13.5.
See table 13.5.
Capital gains
distributions
1940
34,398
Definitional
adjustment: To
remove these
distributions by
regulated
investment
companies and real
estate investment
trusts.
Adjustments are
based on CITR data
for regulated
investment companies
and real estate
investment trusts.
Other
3
1959
-5,141
"Other" adjustment:
To reflect the
exclusion of
distributions that
are not from current
or retained earnings
from dividends in
the NIPAs.
Adjustments are
based on IRS
tabulations and
shareholder reports.
BEA Bureau of Economic Analysis
CITR Statistics of Income: Corporation Income Tax Returns
IRS Internal Revenue Service
NIPAs National income and product accounts
1. The timing, coverage, definitional, and "other" adjustments are the differences between CITR
"dividends paid in cash or assets" and dividends in the NIPAs.
2. According to the Tax Code, certain current-year distributions by these companies can be counted in
the previous tax year.
3. These adjustments are grouped to avoid the disclosure of information.
CHAPTER 13: CORPORATE PROFITS
13-38
Dividends paid by Federal Reserve banks and certain federally sponsored credit agencies
(line 33). Federal Reserve banks, Federal Home Loan Banks, and the Farm Credit System
are included in the corporate sector of the NIPAs. Because these institutions do not file
tax returns, their income and expenses are not included in Corporation Income Tax
Returns. Through this adjustment, the dividends paid by these institutions are included in
NIPA dividends, based on information from their annual reports. In addition, Federal
Reserve banks are required to turn over their profits (less operating expenses) to the U.S.
Treasury. Consequently, these payments, treated as dividends in the NIPAs, must be
added to the IRS dividends. Data for this adjustment are from the Federal Reserve Board.
U.S. receipts of dividends from abroad, net of payments to abroad (line 34). The
Corporation Income Tax Returns item “dividends received from foreign sources”
includes only the dividends received by corporations. To arrive at dividends on a national
accounts basis, their Corporation Income Tax Returns item is removed, and the ITA
measure of dividends received by all U.S. residents is added. A corresponding adjustment
is made to outflows. The foreign dividend measure used for this adjustment includes the
distributed earnings of unincorporated affiliates of U.S. and foreign direct investors.
Earnings remitted to foreign residents from their unincorporated U.S. affiliates (line 35).
By this adjustment, the distributions of unincorporated U.S. affiliates to their foreign
direct investors are included as dividends paid. Net dividend payments by domestic
industries are increased by this adjustment, and the receipt of these distributions by the
rest of the world is reflected in the adjustments made to outflows in line 35. The annual
total is allocated to industries based on data on dividends received from domestic
corporations in Corporation Income Tax Returns.
Interest payments of regulated investment companies (line 36). Interest payments of
regulated investment companies, primarily from money market funds, are included in the
Corporation Income Tax Returns measure of cash distributions. This adjustment
reclassifies such payments from dividends to interest. The adjustment is estimated as
interest received less the interest share of total deductions, based on data for regulated
investment companies from Corporation Income Tax Returns.
Dividends received by U.S. corporations (line 37). As noted earlier in the discussion of
adjustments to PBT, the items for dividends received by corporations in Corporation
Income Tax Returns are subtracted (line 16 plus a portion of line 17 in table 13.4)
because they are not part of current production. This adjustment is made to the dividends
component in order to obtain the appropriate measure of undistributed profits (which is
calculated as PBT less taxes and dividends). The resulting measure of net dividends paid
equals the dividend receipts of persons, government, and foreigners. The adjustment
consists of domestic and foreign dividends received from Corporation Income Tax
Returns.
Earnings of U.S. residents remitted by their unincorporated foreign affiliates (line 38). By
this adjustment, the distributions of unincorporated foreign affiliates to U.S. residents are
included as dividends received. Net dividend payments by domestic industries are
CHAPTER 13: CORPORATE PROFITS
13-39
reduced by this adjustment, and the payment of these distributions by the rest of the
world is reflected in line 35. The annual total is allocated to industries based on data on
dividends received from foreign corporations in Corporation Income Tax Returns.
CHAPTER 13: CORPORATE PROFITS
13-40
Appendix: Domestic Corporate Gross Value Added and Related Measures
This appendix discusses the NIPA measure of domestic corporate gross value
added and several related measures of corporate-sector activity that are presented in
NIPA tables 1.14 and 1.15. Corporate gross value added is defined as the total value of
all goods and services produced by the corporate sector (gross output) less the value of
the goods and services that are used up in production (total intermediate inputs). It is
derived as the sum of consumption of fixed capital, compensation of employees, taxes on
production and imports less subsidies, and net operating surplus. The calculations of
domestic gross corporate value added, net value added, and gross and net operating
surplus are illustrated in the table below, which is based on NIPA table 1.14.
2017 estimate
(billions of dollars)
Compensation of employees
6,432.1
Wage and salary accruals
5,395.6
Supplements of wages and salaries
1,036.5
Plus: Taxes on production and imports less subsidies
884.6
Taxes on production and imports
891.3
Less: Subsidies
6.7
Plus: Net operating surplus
2,106.7
Net interest and miscellaneous payments
268.8
Net interest
252.0
Rents and royalties
16.8
Federal rents and royalties
6.1
State and local rents and royalties
10.7
Business current transfer payments (net)
111.5
Business payments to persons
47.5
Business payments to government
76.2
Business payments to ROW
-3.7
Net insurance settlements
-8.5
Corporate profits with IVA and CCAdj
1,726.3
Equals: Net value added
9,423.4
Plus: Consumption of fixed capital
1,709.3
Equals: Domestic corporate gross value added
11,132.7
Less: Compensation of employees
6,432.1
Less: Taxes on production and imports less subsidies
884.6
Equals: Gross operating surplus
3,816.1
IVA Inventory valuation adjustment
CCAdj Capital consumption adjustment
In addition to the domestic total, estimates of gross value added are prepared for
the financial and nonfinancial sectors. For the nonfinancial sector, estimates of gross
value added in “real” terms—that is, adjusted for inflation—are also prepared. These
estimates are derived by dividing the current-dollar estimates by the gross value added
chain-type price index for nonfinancial industries from BEA’s GDP-by-industry
CHAPTER 13: CORPORATE PROFITS
13-41
accounts. Application of this index usually occurs with the first release of the profits
estimates following the GDP-by-industry annual revision. For periods when this price
index is not available, the chain-type price index for GDP goods and structures is used.
This index is not published, although separate indexes for goods and for structures are
shown in NIPA table 1.2.4. Incorporation of this index occurs with each release of the
profits estimates. Estimates of real net value added are then derived as the difference
between real gross value added and real consumption of fixed capital.
Information on prices, costs, profits, and value added are used to derive per unit
measures for nonfinancial corporate business. These measures are presented in NIPA
table 1.15, which is reproduced for the year 2017 below.
Line in
NIPA
table
1.15
NIPA line item
2017
estimate
[dollars]
1
Price per unit of real gross value added of nonfinancial
corporate business
1.000
2
Compensation of employees (unit labor cost)
0.586
3
Unit nonlabor cost
0.285
4
Consumption of fixed capital
0.154
5
Taxes on production and imports less subsidies plus
business current transfer payments (net)
0.094
6
Net interest and miscellaneous payments
0.036
7
Corporate profits with IVA and CCAdj (unit profits from
current production)
0.129
8
Taxes on corporate income
0.022
9
Profits after tax with IVA and CCAdj
0.107
IVA Inventory valuation adjustment
CCAdj Capital consumption adjustment
The per-unit measures are computed by dividing current-dollar nonfinancial gross
value added and its components—compensation of employees, consumption of fixed
capital, taxes on production and imports less subsidies, business current transfer
payments (net), net interest, and corporate profits—by real (chained-dollar) nonfinancial
gross value added. The resulting quotients (divided by 100) provide the value-added
implicit price index and the parts of the price index that are associated with each
component. Value-added unit costs attribute the changes in the value-added unit prices to
its components in proportion to each component’s share of current-dollar value added.
Therefore, year-to-year changes in component shares of current-dollar value added result
in changes in the contributions of the cost components to value-added prices even if the
prices do not change.
