4 tax loopholes that encourage soaring executive pay

The accounting trick loophole

Annual taxpayer cost: $2.5 billion

The Institute for Policy Studies says this accounting loophole allows corporations to report one set of information to shareholders and another to the Internal Revenue Service. By law, shareholders get a rundown of the stock options given to executives on an annual basis. But it's just an estimate based on when executives will cash in. Corporations don't actually deduct executive stock options on their returns until years later, when executives exercise those options. Because the value of stock is usually much higher at the later date, corporations can take a bigger deduction and aren't required to report it to shareholders. Those overstated earnings reports allow corporations to allot more "performance-based" pay to executives, reports the IPS, and pay less in taxes.

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