Over the weekend, The New York Times reported that Republican presidential candidate Donald Trump declared a $916 million business loss in 1995. The tax code may have allowed him to legally avoid federal income taxes for up to 18 years.
Setting aside the politics about tax codes and the presidential race, it looks like the same strategy is used by many others. Essentially, the rule allows business to carry their losses forward, which can then be used to offset future profits when filing for a tax return. American Airlines, among other U.S. carriers, may also have used the same mechanism to substantially reduce their income taxes.
An American Airlines 737-800 in Montréal. Photo by Alexandre Gouger, used with permission.
Bill Hethcock from Dallas Business Journal dug into American Airlines’ 2015 SEC filings, and found that the airline has about $8 billion of carry forwards available for federal income taxes. American Airlines was definitely struggling financially at one point—in 2011, they filed for Chapter 11 bankruptcy. The merger between American and US airways created this sum of carryforward, which would offset income tax expense.
Delta Air Lines, which also filed for Chapter 11 bankruptcy in 2005, after losing billions of dollars in that decade. Of course, the airline now makes billions of dollars: in 2015, they registered $5.9 billion of pre-tax income. However, they don’t pay any income taxes, because of “net operating loss carry-forwards.” As of the end of 2015, Delta still has $9.5 billion of net operating losses, which won’t expire until 2024. Essentially, Delta hasn’t paid any income taxes since 2011, and likely won’t pay any until 2018.
A Delta spokesperson told Atlantic Business Chronicle:
The vast majority of Delta’s net operating loss deductions are the result of unsustainable financial losses from 2001 – 2005, which resulted in Delta’s 2005 Chapter 11 bankruptcy filing. These deductions are designed by the government to even out gains and losses for tax purposes over an extended business cycle – not a calendar year.
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6 comments
Every company uses it.
You should call your mutual funds co. see if they uses NOL. If your fund has losses in any year, more than likely they either carried the losses forward for back for the benefit of you.
The Clintons have used the same strategy in years past, albeit only in the millions of dollars. Hypocrites.
I read this same article. As a CPA, it was very misleading. The Clinton’s used a capital loss carry forward for $700,000. Unfortunately for them, the law only let’s them use 3,000 of it per year. Trump used an net operating loss carryforward. I agree, businesses and people should be able to deduct their losses. The loophole here is that Trump could start a business, put in a million and take a 10 million dollar loan. The business fails, but now he can take 11 million dollars of tax losses even though he only put in 1 milllion. As a CPA, it’s hard to read these misinformed articles. That is as simple as I can make it.
thanks for making it so simple for us. were any laws broken? no
It is not a “strategy” – it is tax law. If a company was to not follow the law concerning carry forwards, the tax accountants would be fired, the external auditors would call it out, and the stock price would take a hit.
This isn’t news. This is akin to saying it is a strategy to take a deduction for your kids.