[Am-info] Re: MS cashflow/taxes: was MS depositions

[Erick Andrews]

On Wed, 27 Feb 2002 14:35:12 -0500, John J. Urbaniak wrote:

>
>
>"Glenn T. Livezey, Ph.D." wrote:
>
>> > From: "John J. Urbaniak" <jjurban@attglobal.net>
>> > Subject: Re: [Am-info] Re: MS depositions
>> > And if it's true that they paid no federal taxes for the last two
>> > years, then their income is just enough to cover their expenses.
>>
>> I have no specific knowledge, and I agree that their 'value' is mostly
>> hype. However, it is my recollection that the tax scam was essentially
>> a combination of their ability to write off the inflated 'cost' of
>> stock options as employee compensation, and hyperinflated 'costs' of
>> donated or discounted software to various non-profits. Thus, the idea
>> that their income only covers their true costs is flawed.
>
>No.  The IRS is exquisitely capable of forcing companies to account for
>all sources of income and expenses.  It can be said with certainty that if
>a company is (legally) paying no taxes, then it is making no profit.
>Enron is a perfect example - they paid no taxes because they made no
>profit - now they're bankrupt.   I'll assume that Microsoft has properly
>filled out the IRS forms.
>
>The scam is on the stockholder's side, where MS is able to show a profit
>that doesn't exist due to the stock options.  And like Enron, the
>"analysts" either haven't a clue, or are co-conspirators.
>
>> That sheet
>> only 'balances' for tax purposes. Microsoft is still highly profitable
>> for at least a select few at the top.
>
>See above.
>
>John

I'm not a financial whiz so feel free to correct me...

It's my understanding that employee stock options can written
down for IRS tax purposes but do not have to be shown on the
balance sheet for SEC-required reporting.  Therefore, a company 
so doing looks financially better to their stockholders than they 
actually are because the liability doesn't show up.

Is that a good way to explain it?

Also, I believe I read somewhere that this "loophole" may soon
be closed since the demise of Enron.

-- 
Erick Andrews